EUR/USD: Bullish signs build up amid T-yield curve flattening, trade war fears

The Treasury yield curve continues to flatten, could hurt USD.
US-China trade tensions escalate.
The daily chart shows a bullish price-relative strength index (RSI) divergence, potential double bottom bull reversal pattern.

Omkar Godbole FXStreet Contributor

The EUR/USD could go on the offensive this week, amid rising US-China trade tensions and the relentless flattening of the treasury yield curve.

At press time, the spot is trading at 1.1656, having clocked a high and low of 1.1673 and 1.1646 in the Asian session.

Treasury yield curve continues to flatten

The spread between the US 10-year treasury yield and the 2-year treasury yield fell to 34 basis points today - the lowest level since October 2007. A flatter yield curve is a bad news for the US dollar. Also, the difference between the 10-year yield and 7-year yield could turn negative, i.e. could invert soon, signaling a recession for the US economy.

US-China trade war escalates

The Trump administration is considering blocking Chinese companies from investing in US technology companies. These majors if announced, may invoke retaliatory action from China, thus leading to a long drawn out trade war. Consequently, the greenback could remain under pressure.

Bullish signs buildup on the daily chart

The EUR's recovery from 1.1508 (June 21 low) established a bullish price-relative strength index (RSI) on the daily chart. Also, the common currency could be charting a potential double bottom with neckline resistance of 1.1852.

EUR/USD Technical Levels

Resistance: 1.1688 (4H 100MA), 1.1732 (4H 200MA), 1.1852 (ECB day high).

Support: 1.1633 (4H 50MA), 1.1598 (Friday's low), 1.1508 (June 21 low).

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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