EUR/USD - Short-term bear reversal sighted ahead of EZ PMIs

EUR/USD looks heavy as per short-term technical set up.
Eyes Eurozone preliminary PMI release.
USD well bid on Fed expectations and rising treasury yields

Omkar Godbole FXStreet Contributor

EUR/USD fell below 1-hour 200-MA yesterday and was last seen trading in a sideways manner around 1.2335.

Friday's bearish outside day candle and weak follow through this week indicates a short-term bullish-to-bearish trend change. So, doors seem to have opened for a decline to 1.2206 (Feb. 9 low and also double top neckline support).

That said, the EUR/USD could regain its mojo if the preliminary Eurozone PMI (due today) show continued expansion in economic activity in February.

However, the gains need to be viewed with caution as the focus seems to have shifted to rising US treasury yields. The recent US data points have shown an uptick in inflation and wages, justifying a faster Fed policy tightening. So, the odds are high that markets will begin repricing a more hawkish Fed policy, especially if the Fed minutes due today sound hawkish.

Further, German and Italian political risks could keep EUR bulls at bay. The EUR/USD one-month 25 delta risk reversals have slipped to -0.7 from the recent high of -0.5, indicating increased demand for EUR puts (bearish bets).

EUR/USD Technical Levels

Acceptance above 1.2412 (previous day's high) could yield re-test of 1.25 (psychological level). However, only a daily close above 1.2556 (Friday's bearish outside day candle high) would revive the bullish outlook.

On the other hand, a daily close below 1.2206 (Feb. 9 low, double top neckline) would mean the rally from January 2017 low of 1.0341 has ended. In such a scenario, the pair could test the ascending 50-day MA of 1.2165 and could possibly break lower in favor of 1.20 (psychological level).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Expanding
1H	Bearish	Neutral	Low
4H	Bearish	Oversold	Shrinking
1D	Bearish	Neutral	Shrinking
1W	Bullish	Overbought	High
Updated Feb 21, 03:15 GMT

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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