EUR/USD: Corrective rally likely on strong EZ data

The EUR/USD pair hit fresh 2017 low of 1.1897 on Monday and may drop further if the Eurozone data continues to disappoint market expectations.

The 14-day relative strength index does show oversold conditions, but a corrective rally remains elusive as markets continue to price in the growing economic divergence between the Eurozone and the US and the Fed-ECB divergence.

Further, the yield differential continues to rise to fresh multi-decade highs in the USD positive manner. For instance, the spread between the US 10-year yield and the German 10-year yield currently stands at 424.5 basis points (bps) - the highest level since 1989.

Thus, the odds are stacked in favor of the EUR bears. That said, the relief rally could be in the offing if the Eurozone industrial production data, due today at 06:00 GMT blows past expectations. A better-than-expected Eurozone trade surplus (due at 06:00 GMT) could also put a bid under the common currency.

On the contrary, if the data prints below estimates, then the EUR/USD could resume the slide towards 1.1709 - 38.2 percent Fibonacci retracement of Jan 2017 low - Feb 2018 high.

Note, the 5-day moving average (MA) and the 10-day MA are trending south, indicating a bearish setup. So, corrective rallies will likely be short-lived, as long as the short-term MAs are biased bearish.

EUR/USD Technical Levels

As of writing, the pair is trading at 1.1912. Acceptance below 1.1880 (Oct. 12 low) would open up downside towards 1.1790 (76.4% FIb R of Nov-Feb rally), under which a major support is lined up at 1.1709 (38.2% Fib R of Jan 2017 low - Feb 2018 high).

On the higher side, a move above 1.1978 (weekly high) could yield a corrective rally to 1.2092 (September 2017 high) and  1.213 (5-week MA).