EUR/USD: Signs of a 400-pips bull trap as US inflation expectations rise

The EUR/USD rose to a high of 1.1814 yesterday and extended gains to 1.1824 in the Asian session today. The spot has retraced 50% of the Friday’s high-low, but remains below 1.1828, which is the 1-hour 100-MA and more importantly, it is the 61.8% Fib R of high-low. 

A 400-pips bull trap

• The chart above shows the EUR/USD rally from the January low of 1.0341 has been accompanied by a steady decline in the inflation expectations.
• We have repeatedly stated that the fate of the US dollar is directly dependent on the price pressures.
• The chart above also shows the move from 1.14 to 1.18 was accompanied by the rising US 10-year break even inflation rate [difference between the yield on the US 10-yr treasury inflation protected security and the 10-year Treasury yield].
• Thus, it could be concluded that the 400-pips rally [1.14-1.18] could be a bull trap. This goes well with the overbought 14-day RSI and the last week’s failure to hold above the weekly 200-MA last week.
• Also worth noting is - the spread between the US-German 10-year yield has breached the falling channel to the higher side.

The Eurozone and the US data docket is light. The German trade number is hardly a market mover. Thus, the focus remains on the broader market sentiment. 

EUR/USD Technical Levels

The spot was last seen trading around 1.1813 levels. A break above 1.1828 [1-hour 100-MA + 61.8% Fib R of Friday’s high-low] would expose 1.1869 [monthly 50-MA] and 1.19 [zero levels]. On the lower side, a breakdown of support at 1.1790 [10-DMA] would open up downside towards 1.1770 [previous day’s low] and 1.1728 [Friday’s low]. The daily RSI is turning lower from the overbought territory.