The EUR/USD has found acceptance above the 100-day moving average for the first time since April 25. The common currency picked up a strong bid yesterday after the European Central Bank (ECB) sounded optimistic about prospects for inflation, bolstering the already bullish technical setup. The falling wedge breakout and the ascending 5-day and 10-day moving average (MAs). As of writing this article, the pair is trading flat at 1.1694 up 0.04% on the day. So, it seems safe to say that the path of least resistance is on the higher side. However, the bullish technical setup contradicts the widening US-Germany (DE) yield differential. For instance, the two-year yield spread has raised by 331 basis points today – the highest level since 1989.
EURO Consolidates Around 1.169 Handle as Trump’s Tweets Dampen Risk Appetite in Market
As a result, the rally looks unsustainable. That said, the pair could continue to defy the USD-positive yield spread if the risk assets remain well bid and more importantly, the US August retail sales figure prints below estimates. The data, scheduled for release at 12:30 GMT, is expected to show that consumption, as represented by retail sales, rose 0.4% month-on-month in August, following a 0.5 percent rise in July. USD turned weaker in broad market on weak PPI & news of China & US trade related talks, however a much worse than expected CPI data points to decrease in inflation resulting in sentiment surrounding US turning bearish in medium term.
Even if today’s data is US meets expectation the possibility for USD to gain upper hand against EURO before market closes on Friday is very low as it will scale down investors’ expectations for faster Fed rate hikes. Meanwhile, an above-forecast reading would reinforce expectations that domestic demand would cushion the US economy from external shocks and could put a bid under the USD. Risk sentiment in market has died down a bit as President Trump tweeted that he felt no pressure to do a trade deal with China, causing some unwind of the positive risk sentiment despite his government reaching out to China for trade related talks. Expected support and resistance for the pair are at 1.1677, 1.1641, 1.1621 and 1.1733, 1.1791, 1.1852 respectively.
This article was originally posted on FX Empire
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