EUR/USD - Corrective rally stalled at key MA, eyes US tax debate

The corrective rally in the EUR/USD ran out of steam at the descending 4-hour 100-MA on Friday as the US 10-year Treasury yield rose more than 6 basis points to 2.4 percent.

Tax reform debate continues...

Republican leaders are moving urgently on what would be the first rewrite of the US tax code in three decades. However, key differences are complicating matters. For example, Guardian is reporting that the chairman of the House tax-writing committee, said on Sunday he was confident that chamber would not go along with a Senate proposal to eliminate the deduction for property taxes. This is bad news for the USD bulls.

As Kathy Lien from BK Asset Management says, "we need to see progress rather than regression for the U.S. dollar to resume its rise." Lien adds further, "the dollar's performance in the week ahead will be affected by 3 distinct factors - politics, economics and monetary policy. There's no doubt that politics will be the primary driver, but with 6 Federal Reserve President speaking, the prospect of rate hikes could also affect how the greenback trades. Retail sales and consumer prices are also scheduled for release."

The data calendar is light today, hence the spot is at the mercy of the tax reform debate and the changes in the treasury yield curve.

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik details the technical outlook for the pair as follows-

" From a technical point of view, this latest advance of the common currency seems barely corrective, as in the daily chart, the pair stalled its advance after failing to surpass a bearish 20 DMA, which daily basis has widened the distance with the 100 DMA. Indicators in the mentioned time frame corrected overbought conditions, but lost their strength upward well below their mid-lines, now turning lower, indicating that further technical confirmations are required to see the pair advancing. In the 4 hours chart, the 20 SMA heads higher below the current level, but the pair met selling interest around a bearish 100 SMA. The RSI indicator has begun easing after reaching overbought readings, but the Momentum maintains its bullish slope, suggesting further advances are likely. The pair is trading at the key 1.1660 region, with an immediate resistance at 1.1690, where it topped earlier this month. A steadier recovery beyond this last should keep the pair on the bullish side, at least short-term."

Support levels: 1.1620 1.1690 1.1550

Resistance levels: 1.1690 1.1720 1.1750