EUR/USD: Bulls need big miss on US data to force a breakout

A breakout in EUR/USD will likely remain elusive unless key US data releases on Wednesday miss expectations by a big margin.

The pair jumped 0.58% on Monday, confirming its biggest single-day rise since Sept. 17.  The sharp rise neutralized the immediate bearish setup but failed to invite stronger buying pressure, leaving the pair below the Nov. 21 high of 1.1097. A close higher is needed to confirm a bullish breakout.

That, however, looks difficult amid fading US-China trade optimism. President Trump on Tuesday said that he may delay a trade deal with China till after the 2020 presidential election.

Further, the US House of Representatives overwhelmingly passed the Uighur Act, a bill to condemn the Chinese government for its mass internment of Uighur Muslims in Xinjiang. China has condemned the US move and has warned of retaliation.

The escalating political tensions could complicate matters on the trade front. As a result, the EUR may struggle to pick up a strong bid, more so, as China's Yuan is losing ground against the greenback. The USD/CNY pair is currently trading at 7.0672, the highest level since Oct. 25.

Put simply, the odds are stacked against the EUR bulls and forcing a breakout above 1.1097 could be a tough task.

The pair, however, may find acceptance above 1.1097 if the dollar side of the story weakens significantly. The US ADP Employment report, due at 13:15, is expected to show the private sector added 140K jobs in November compared to 125K jobs in October. Meanwhile, the ISM Non-Manufacturing PMI (Nov) is seen printing at 54.5 versus 54.7 in October.

A big miss on the ADP and ISM PMI will likely revive dovish Federal Reserve expectations, yielding a broad-based sell-off in the greenback. Currently, markets are expecting the central bank to stand pat until the US Presidential Elections, due in November 2020.

Technical levels