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EUR/USD Daily Price Forecast – EUR/USD Moves in Range Bound Pattern Due to Lack of Trigger for Breakout

The pair may have a hard time scaling the neckline resistance, courtesy of the widening two-year and 10-year US-DE (Germany) yield spread.
Colin First
EURUSD Wednesday
EURUSD Wednesday

The US Dollar moved higher during the second half of Tuesday’s trading session and recovered early weakness to near seven-week lows, touched in the aftermath of new tariffs announced by China. Surging US Treasury bond yields, with the benchmark 10-year bond hitting its higher level since May, turned out to be one of the key factors prompting some USD short-covering. Meanwhile, the EUR/USD pair once again failed to make it through the 1.1720-30 heavy supply zone and finally ended in red, for the second consecutive session this week. As of writing this article, the pair is trading at 1.1680 up 0.12% on the day and has maintained a range bound price action so far. The daily chart of the EUR/USD is flashing a bullish reversal pattern, but a breakout may remain elusive, as the bond yield differentials are rising in the EUR-negative manner.

US-DE Yield Differential Is Currently in Favor of EUR/USD Bears

The pair regained some positive traction during the Asian session on Wednesday, albeit remained well below the 1.1700 handle as investors continue to assess the latest escalation of US-China trade tensions. There isn’t any market-moving economic data due for release from the Euro-zone, while the US economic docket offers housing market data – building permits and housing starts. The range bound price action is expected to continue in near future as the spread between the US and German bond yields for 10-year bonds currently stands at 257 basis points – the highest level since Aug. 8. More importantly, the two-year spread, which is more sensitive to interest rate expectations, is hovering at 233 basis points – the highest level since 1989.

While the spread difference has failed to provide enough market impact to turn in US Greenback’s favor, the odds of the spread rising further are high, as the Fed is expected to raise rates next week.  Meanwhile the EUR could also pick up a bid if the Chinese Yuan posts big gains against the USD. When looking at pair from technical stand point, the 1.1720-30 region marks the neckline resistance of an inverted head & shoulders chart pattern on the daily chart and remains an important trigger for bullish traders. A convincing break through the mentioned barrier would confirm the bullish pattern and trigger an aggressive short-covering rally, even beyond the 1.1800 handle, towards its next major hurdle near mid-1.1800’s. On the flip side, any meaningful slide might continue to find immediate support near the 1.1610-1.1600 region, below which the pair could head back towards testing an important horizontal support near the 1.1530-25 horizontal zone.

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