EUR/USD: Corrective rally stalls on weak data, conflicting signals on the charts
- EUR/USD corrective rally seems to have run out of steam above 1.18.
- Weak German and French data may have tapered the ECB QE taper talk.
- Trade fears could hurt both USD and EUR, the focus remains on yield differential.
- Technical charts show conflicting signals.
The EUR/USD created an inverted bearish hammer on Thursday and a bearish hammer on Friday, signaling the corrective rally from the recent low of 1.1510 has run out of steam in the 1.1840 neighborhood.
The bullish exhaustion could be associated with downside economic surprises from Germany and France (dismal industrial output numbers) and the resulting fear that the ECB will refrain from discussing QE taper at its July meeting.
Trade tensions to put more focus on yield differential
The G7 disaster and the heightened trade tensions could force the Fed to adopt a slower rate hike path and complicate ECB's QE taper plans. So, both EUR and USD are at risk. That said, the USD could still find bids, given the rate differential favors the greenback.
Conflicting signals on the charts
The back-to-back hammer candles on the daily chart signal the corrective rally has stalled. Further, the 50-day moving average has crossed the 200-day moving average in an EUR-negative manner.
However, the weekly chart paints a bullish story. Last week's positive price action has confirmed a bullish doji reversal. Also, the 100-week moving average has crossed the 200-week moving average in an EUR-positive manner.
EUR/USD Technical Levels
Resistance: 1.18 (psychological hurdle), 1.1822 (May 9 low), and 1.1855 (38.2% Fib R of Apr-May sell-off).
Support: 1.1769 (5-day moving average), 1.1727 (June 8 low), and 1.1709 (10-day moving average).