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EUR/USD: Firm T-yields and outside-day doji could keep the EUR under pressure

  • The EUR could remain under pressure, courtesy of an uptick in the treasury yields.
  • Outside-day Doji indicates bullish exhaustion, makes today's close pivotal.

The EUR/USD could feel the pull of gravity amid rising treasury yields, having created a big outside-day doji candle yesterday.

The common currency rose to 1.1815 yesterday after the European Central Bank (ECB) head Mario Draghi took note of the "relatively vigorous" pick-up in the underlying price pressures and rising wage-price inflation. However, he added further that the pick-up in inflation is conditional on interest rates staying low through next summer, dashing hopes of an early rate hike.

As a result, the common currency surrendered gains and ended up creating a bearish outside-day doji, which indicates the rally from the Aug. 15 low of 1.301 has likely run out of steam.

That argument would gain more credence if the spot closes today below yesterday's low of 1.1724. The possibility of a bearish daily close is high as the treasury yields may rise ahead of tomorrow's Fed rate decision. Further, rising oil prices may force markets to price-in prospects of above-neutral interest rates in the US. At press time, the 10-year treasury yield is trading two basis points higher on the day at 3.098 percent.

On the other hand, a close above the previous day's high of 1.1815 would signal a continuation of the rally from the recent lows.

On the data front, the German wholesale price index (WPI) is scheduled for release at 06:00 GMT. Further, ECB's Praet is scheduled to speak at 08:25 GMT and ECB's Coeure is due to speak at 12:00 GMT.

As of writing, the currency pair is trading at 1.1737.

EUR/USD Technical Levels

Resistance: 1.1791 (July 9 high), 1.1815 (previous day's high), 1.1852 (June 14 high)

Support: 1.1736 (5-day moving average), 1.1696 (10-day moving average), 1.1659 (100-day moving average)

Author

Omkar Godbole

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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