EUR/USD fell to a fresh 16-month low on Wednesday, breaking below the 61.8% Fibo of the 1.0636-1.2349 rally, but a sharp bounce off the 1.1263 EBS low generated chart signals that should concern shorts, along with an about-face in U.S. rates.
The U.S. 10-year yield US10YT=RR hit a 15-session high of 1.649% before it turned lower on the session.
June 2022 eurodollar futures prices EDM2 erased overnight losses and have turned positive on the session.
The interest rate price action suggests a rates might correct lower after recent sharp gains.
Yield spreads could aid a short squeeze.
2-year spreads have tightened since Nov.
Interest rate moves and tighter spreads could underpin EUR/USD.
On the charts, a daily long-legged doji candle has formed and the oversold daily RSI is close to diverging on the new low, potentially signaling short-term EUR/USD gains.
However, monthly technicals highlight longer-term downside risks.
RSI is falling and is not oversold.
EUR/USD is holding below the key 50% Fib of the 1.0636-1.2349 rally.
Monthly techs suggest rallies could be sold as the bear trend is likely to resume once oversold conditions are unwound.
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