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EUR/USD - Its flattening T-yield curve vs. German political uncertainty

  • EUR offered as German coalition talks collapsed.
  • The EUR/USD dropped below 100-day MA of 1.1747 in Asia.
  • The flattening of the Treasury yield curve may cap the downside. 

The EUR/USD pair fell below the 100-day MA level in Asia as Chancellor Merkel is left facing prospect of forming minority government – or fresh elections

Focus on coalition talk

EUR sell-off could gather pace in Europe as a minority government would leave Merkel on a weak footing. Further, there is always a risk of Merkel losing more ground in re-elections. Thus, the head and shoulders neckline support around 1.1670 stands exposed.

However, prospects for the US dollar look grim as the Treasury yield curve continues to flatten. The spread narrowed to a fresh decade low of 60.5 basis points. A flatter yield curve is USD bearish and vice versa.

As of now, it appears the German political uncertainty will continue to overshadow the flatter treasury yield curve and could keep the EUR/USD under pressure.

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "from a technical point of view, the pair has turned bullish, yet the daily chart shows that the price settled right below its 100 DMA, with some follow-through beyond the moving average needed to confirm more solid gains ahead. In the same chart, technical indicators are aiming to pick up after a period of consolidation well into positive territory, favoring a new leg higher. The pair is also struggling around the 23.6% retracement of its latest bullish run, with the 38.2% retracement of the rally at 1.1745, being a key support for the upcoming days. Shorter term and according to the 4 hours chart, the outlook is neutral-to-bullish, as the price settled around a bullish 20 SMA, which converges with the mentioned 23.6% Fibonacci retracement, while the RSI hovers around 59, while the Momentum tries to re-enter positive territory, heading higher right below its 100 level.

Support levels: 1.1745 1.1700 1.1665

Resistance levels: 1.1830 1.1860 1.1890

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