EUR/USD: Technical breakout confirmed ahead of Eurozone CPI release

A sharp drop in Treasury yields helped EUR/USD chalk out a bullish breakout on the technical charts.
The bullish breakout may fail if the Eurozone inflation data prints well below estimates.

Omkar Godbole FXStreet Contributor

EUR/USD technicals are leaning bullish amid sliding treasury yields. However, a break above the 50-day moving average (MA) resistance of 1.1277 may remain elusive if the Eurozone inflation data, due later today, prints below estimates.

The shared currency picked up a strong bid on Monday and closed with 0.64% gains at 1.1240, confirming an upside break of the descending triangle represented by trendlines connecting April 17 and May 13 highs and April 26 and May 23 lows.

The breakout represents a bearish-to-bullish trend change and has opened the doors for a convincing move above the 50-day MA of 1.1277.

That looks likely as the US Treasury yields are losing ground on the rising odds of Fed rate cuts. For instance, the 10-year yield fell to 2.06% on Monday, the lowest level since September 2017. Meanwhile, the two-year yield fell to 1.806%, the lowest level since December 2017.

Notably, the market-based probability of a rate cut at the Federal Reserve’s meeting in July has surged to 53 percent his week. Notably, those odds were below 20 percent a month ago, according to the Wall Street Journal. Further, the market is now expecting the Federal Reserve to cut rates by more than 60 basis points by the year-end.

Therefore, the American Dollar may continue to lose altitude during the day ahead. The common currency, however, may run into offers if Eurozone's preliminary Consumer Price Index - Core (YoY) (May) prints below the expected figure of 0.9%, validating the European Central Bank's (ECB) dovish stance.

A better-than-expected Eurozone inflation would bolster the already bullish technical setup, opening doors for a move above 1.13. Also post-Eurozone data, the focus would shift to Federal Reserve Chairman Powell's speech.

Pivot levels

1. R3 1.1386
2. R2 1.1325
3. R1 1.1283
PP 1.1222
1. S1 1.118
2. S2 1.1118
3. S3 1.1077

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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