EUR/USD fell to 1.1689 [support offered by the trend line sloping upwards from June 23 low] on Wednesday before recovering losses to end the day on a flat note at 1.1757 levels. The sharp recovery from the trend line support is no doubt encouraging for the EUR bulls, however, the US-German 10-yr bond yield spread tells another story.
Bullish break on the yield spread chart
The US-German 10-year yield spread chart above shows a convincing bullish break of the falling trendline/channel.
It indicates the spread is likely to widen further in favor of the USD over the next few days.
EUR/USD has topped out
- The chart above clearly shows the inverse relationship between the bond yield spread and the EUR/USD pair.
- The spread topped out in late December/early January, while the EUR/USD bottomed out around 1.0341 levels.
- Thus, a bullish break on the yield spread suggests the EUR/USD has topped out at least for the short-term. The spread may widen further in favor of USD if today’s US weekly jobless claims drop more than expected and tomorrow’s US betters estimates.
EUR/USD Technical Outlook
“Euro's anticipated rebound from 1.1689 to 1.1761 in New York on Wednesday signals 1st leg of correction from last Wednesday's fresh 2-1/2 year peak at 1.1909 has ended and intra-day retreat from 1.1771 (AUS) would bring consolidation before another rise to 1.1800 later today.
On the downside, only below 1.1716 may risk weakness towards 1.1689 before prospect of another rebound.
EUR/USD Technical Levels
Support: 1.1693 [trend line hurdle], 1.16 [zero levels], 1.1553 [4-hour 200-MA]
Resistance: 1.1794 [10-DMA], 1.1802 [4-hour 50-MA], 1.1824 [resistance on 4-hour]
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