EUR/USD: Sell-off stalled, oversold readings overshadow yield differential

  • EUR/USD sell-off seems to have come to a halt below 1.18.
  • Oversold conditions could overshadow rising US-DE yield differential, yield a corrective rally.

The sell-off in the EUR/USD seems to have come to a halt around 1.1770, possibly due to oversold technical conditions.

The common currency picked up a bid in Asia and moved above 1.18 despite the 10-year treasury yield rising to a fresh 7-year high of 3.128 percent.

Euro's resilience does not come as a surprise as the 14-day relative strength index (RSI) has shown oversold conditions since May 2. The RSI has also diverged in the EUR-positive manner.

So, a corrective rally could be in the offing and could gather steam on the back of an above-forecast Eurozone producer price index (PPI) and the wholesale price index (WPI) reading. The data is scheduled for release at 06:00 GMT.

That said, there is limited upside potential as the yield spread will likely continue rising in the USD-positive manner, courtesy of the Fed-ECB monetary policy divergence.

EUR/USD Technical Levels

The corrective rallies will likely be transient as long as the 5-day moving average (MA) and the 10-day MA is biased bearish (sloping downwards). Resistance is seen at 1.1822 (May 9 low), 1.1866 (10-day MA), and 1.1878 (200-hour MA). Meanwhile, support is lined up at 1.1790 (76.4 percent Fibonacci retracement of the recent sell-off), 1.1763 (weekly low), and 1.1718 (Dec. 12 low).

  TREND INDEX OB/OS INDEX VOLATILY INDEX
15M Bullish Neutral Expanding
1H Bullish Neutral Low
4H Bullish Neutral Low
1D Bullish Oversold Expanding
1W Bearish Neutral Low

 

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