EUR/USD - Mixed signals from charts, but yield spread favors downside
- Candlestick patterns signal confusion in the market.
- A USD-favorable rise in the US/DE yield spread favors the bears.
EUR/USD topped out above 1.18 yesterday and ended with minuscule gains at 1.1768. The resulting candle looks like a gravestone doji (the candle with a long upper shadow), which indicates the buying pressure was countered by a strong selling pressure. It is usually considered a sign of bull market exhaustion.
What's more interesting is the fact that yesterday's gravestone doji was preceded by a dragonfly doji candle, which shows the sellers could be running out of steam. Thus, charts/candlestick patterns convey a mixed message.
However, the bond yield spread indicates the bears could have an upper hand in the ongoing tug of war with the bulls. The US-German 10-year yield spread rose to 209.5 basis points yesterday; its highest level since April 12.
- Also read: EUR/USD risk reversals adopt a bearish bias
Focus on Zew survey
Kathy Lien from BK Asset Management says the German ZEW survey could show that the nation's recent political troubles are having a negative effect on investor sentiment. "Technically, if EUR/USD breaks below 1.1750, then 1.1700 becomes fair game", Lien says.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik writes, "the pair has been unable to surpass the 61.8% retracement of the late November bullish run around the 1.1800 figure, presenting a neutral stance in the 4 hours chart, as technical indicators have completely corrected oversold conditions, but lost upward strength once reaching their mid-lines, suggesting the corrective movement may well be over. In the same chart, the price stands a few pips above a still bearish 20 SMA, but between horizontal larger ones, a sign of the current lack of directional strength. The pair would need to advance beyond 1.1830 to look a bit more positive, while the key support is the 1.1710/20 price zone, where the pair bottomed late November and last week."
Support levels: 1.1750 1.1710 1.1660
Resistance levels: 1.1800 1.1830 1.1860