EUR/USD: What’s next - Monthly 50-MA or Weekly 200-MA? Yield spread nears trend line hurdle

The EUR/USD dropped to 1.1785 yesterday after the US data showed the core personal consumption expenditure [PCE] in June rose 0.1% on the month and 1.5% year-on-year. The previous month’s print was revised up to 1.5% from 1.4%.

The 1-hour 50-MA level of 1.1793 came to the rescue of the EUR/USD pair in Asia. However, subsequent gains were capped around 1.1810 levels.

Next move: Monthly 50-MA or Weekly 200-MA?

Monthly 50-MA is seen at 1.1869 and the weekly 200-MA is stationed at 1.1786. Whether the spot ticks higher to 1.1869 or extends Tuesday’s losses to 1.1786 depends on the action in the US-German 10-yr yield spread and broader market sentiment.

The chart above shows-

• The spread is on the rise, although the falling trend line/channel is still intact.
• A break of the trend line hurdle of 1.7924 [widening of the spread in favor of the USD] could weigh over the EUR/USD pair.

The Eurozone data docket is thin, hence the focus is on the US ADP employment report due at 12:15 GMT and Fed speak. A strong ADP report and hawkish comments from the Fed officials - Mester and Williams could yield a bullish break on the yield spread chart and push EUR/USD down to weekly 200-MA of 1.1786.

On the other hand, a weak US data would weigh over the yield spread and push EUR/USD higher to 1.1869 [monthly 50-MA].

EUR/USD Technicals

FXStreet Chief Analyst Valeria Bednarik writes, “the 4 hours chart shows that the pair remained contained below the roof of the ascendant channel, but above bullish moving averages, with the 20 SMA currently around 1.1760. The Momentum indicator pulled sharply lower from overbought territory, while the RSI indicator also heads modestly lower, but holding around 65, yet given the shallow price retracement, chances remain towards the upside, with a bullish breakout of the daily high favoring an extension towards 1.1900 and beyond for this Wednesday.”