EUR/USD: Descending broadening wedge on 4H, focus on yield differentials

The EUR/USD pair has charted a descending broadening wedge on the 4-hour chart, which is widely considered a bullish reversal pattern.
An upside break could be seen today if the spread between the 10-year Italian bond yield and the German bond yields drops sharply.

Omkar Godbole FXStreet Contributor

The EUR/USD has created a descending broadening wedge on the 4-hour chart. At press time, the common currency is trading at 1.16 - below the 50-day moving average (MA) of 1.1613.

An upside break of the descending broadening wedge resistance (top end), currently seen at 1.1638, would confirm a bullish reversal, that is, a pullback from the recent high of 1.1733 has ended and the pair could make climb its way back to levels above 1.17.

A bullish breakout could be in the offing if the Italy-Germany 10-year yield drops sharply, signaling the concerns regarding Italy's fiscal health are easing. As of writing, the spread stands at 285 basis points, having doubled since May.

On the other hand, if the spread continues to widen and the risk assets take a hit, then the EUR/USD could find acceptance below 1.1587 (4H 200MA) and drop towards the key support at 1.15.

EUR/USD Technical Levels

Resistance: 1.1613 (50-day moving average), 1.1632 (10-day moving average), 1.1690 (Aug. 31 high)

Support: 1.1568 (38.2% Fib R of 1.1301/1.1733), 1.1530 (June 8 low), 1.15 (psychological level)

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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