- A minor corrective rally could be on the cards, the EUR/USD technical charts indicate.
- Italy uncertainty lingers, central bank divergence favors the EUR bears.
The EUR/USD created a bullish inside-day bullish inverted hammer candle on Thursday, signaling the sell-off from the April 17 high of 1.2414 has run out of steam.
A positive follow-through (i.e. a close today above 1.1750) would confirm a short-term bullish reversal. The 14-day relative strength index (RSI) has been showing oversold conditions since May 2. Hence, the pair could find acceptance above 1.1750 today and may rise even further if the US durable goods figure, scheduled for release at 12:30 GMT, disappoints expectations.
However, the probability that the EUR will post big gains after bullish reversal is low as Italian uncertainty lingers. The ratings agency Standard & Poor’s has warned that the ‘minibot’ plan being prepared by anti-euro Lega nationalists and the Left Five Star Movement would establish a parallel currency system that could spook the financial markets.
Further, the ECB minutes released yesterday showed the central bank is in no hurry to change its current monetary policy stance. Meanwhile, the Fed is seen raising rates three more times this year, according to a Reuters poll. The growing monetary policy divergence favors the US dollar.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik says the unattractive EUR will continue to remain under pressure.
Support levels: 1.1695 1.1660 1.1620
Resistance levels: 1.1745 1.1790 1.1830
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