EUR/USD - Rising channel breached to the downside, focus on US CPI report

The EUR/USD dropped to a low of 1.1873 on Wednesday as tax reform talk in the US boosted the treasury yields and the US dollar. The currency pair remained on the back foot in Asia around 1.1880 levels.

Rising channel breached to the downside

Rising channel drawn from June 27 low and Aug 17 low and Aug 2 high and Aug 29 high has been breached to the downside. The technical set up indicates a short-term trend reversal, which is in line with the bearish bias shown by the EUR/USD October expiry options activity.

Still, caution is advised as the bond yield spread has not moved much in favor of the US dollar.

US-German 10-year yield spread

The 10-year yield spread remained flat lined around 178 basis points yesterday. A break above the recent high of 184 basis points [Aug 15 high] would add credence to the bearish breakdown on the price chart.

Eyes US CPI

The US data due today at 12:30 GMT is expected to show the consumer price index [CPI] ticked up in August, in part because of a slight pickup in gasoline prices. Economists believe September's inflation data could be much stronger based on the jump in gasoline prices after Hurricane Harvey.

A better-than-expected CPI could steepen the Treasury yield curve, leading to further losses in the EUR/USD pair.

EUR/USD Outlook

Kathy Lien from BK Asset Management writes, " Eurozone fundamentals have not changed. The ECB is still planning to reduce asset purchases, next month, but it will be difficult for EUR/USD to rise until the dollar stops falling.  We still like buying EUR/USD on dips so if you've got tolerance for a stop near 1.17, today's move down to the 20-day SMA would be the a good place to start scaling into a long position.'

FXStreet Chief Analyst Valeria Bednarik says, "failure to regain 1.2000 is certainly discouraging for bulls, and the pair could clearly fall further, although long term the decline continues to look corrective, specially as there's no real background for a dollar rally. A long term ascendant trend line coming from the 1.0600 region, comes today around 1.1795, becoming a critical support, as a break below it will indicate that a steeper correction is under way. In the meantime, and for the short term, the pair is biased lower as in the 4 hours chart, and after failing to surpass its 20 SMA, the pair broke below the 100 SMA, whilst technical indicators maintain their strong downward slopes within negative territory. Last week low at 1.1822 is now the immediate support, en route to the mentioned trend line around 1.1795.