- Technicals favor a drop to the psychological support of 1.20.
- No fireworks expected from the ECB, hence yield spread will likely continue to rise in the EUR-negative manner.
- Options market shows increased demand for the EUR puts.
Daily chart
-636602335829725620.png)
The pair breached the ascending trendline (drawn from the April 2017 low and November 2017 low) in a convincing manner on April 20, signaling long-term bullish invalidation. Further, a downside break of the pennant pattern confirmed on April 23, has boosted the odds of a bearish breakdown of 1.2150-1.2550 trading range. The 5, 10, 21MA are biased bearish (sloping downwards) and the relative strength index (RSI) has dipped below 50.00 (bearish territory).
Weekly chart
-636602336469475091.png)
The bearish RSI divergence and a downside break of the pennant suggest scope for a further decline in the EUR/USD. The 5-week MA and the 10-week MA are biased bearish.
And last but not the least, the spread between the 10-year US treasury yield and the German 10-year bond yield stands at 236.8 basis points - the highest level since 1989 and could rise further in the EUR-negative manner as the 10-year treasury yield looks set to scale the 3 percent mark in a convincing manner.
Read:
Increased demand for EUR puts (bearish bets)
ECB Preview: no fireworks expected this Thursday - Barclays
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EUR/USD looks set to test 1.20 (psychological support + 200-day MA) in a week or two. A break below that level would trigger stops on positional longs and hence could set the tone for a deeper and faster sell-off to 1.1709 (38.2 percent Fibonacci retracement of 1.0341-1.2556).
On the higher side, only a daily close above the 10-day MA would abort the bearish view.
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