- Bull doji reversal confirmed, but the EUR is not out of the woods yet.
- Italian-German yield spread could widen as Italy falls to the forces of populism.
- The momentum studies are still biased bearish.
The EUR created a doji candle on May 9, signaling indecision or bearish exhaustion and posted gains yesterday, confirming a short-term bullish doji reversal.
Further, the 14-day relative strength index (RSI) is turning higher from the oversold territory. So an argument could be put forward that the EUR will likely see better times ahead.
However, Italian political risks could still play spoilsport. The most indebted member of the Eurozone has succumbed to the forces of nationalism and protectionism, according to Bloomberg. The country is set to form the populist government by Monday - a development which is unlikely to go down well with the bond markets.
Italian bond yields are already on the rise, representing investor concern regarding the political situation. the 10-year Italy-German yield spread widened to 138 basis points yesterday - highest since March and could rise even further in the EUR-negative manner as markets fear the debt situation could worsen under the new populist government.
Further, the momentum studies are still biased bearish. The 5-day moving average (MA), 10-day MA and 21-day MA are trending south, indicating a bearish setup. Thus, it is too early to call a bottom. That said, the weaker-than-expected US CPI release does seem to have weakened the bid tone around the greenback, hence the EUR/USD could move in a sideways manner.
EUR/USD Technical Levels
As of writing, the spot is trading at 1.1920. Resistance is seen at 1.1944 (10-day MA), 1.20 (psychological hurdle) and 1.2018 (200-day MA). Meanwhile, support is lined up at 1.1894 (5-day MA), 1.1822 (May 9 low), 1.1718 (Dec. 12 low).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.