The euro has corrected 1.7% lower from a 20-month high at 1.2349 reached on Jan 6. The next few days should decide whether the correction needs to extend further or the uptrend that dominated much of 2020 is set to resume.
The EUR/USD fall was sparked by a rise in the U.S. 10-year Treasury yield from 0.91% at the close of 2020 to a high of 1.18% on Tuesday nL1N2JO25L. Wednesday's price action has to be a concern for EUR/USD bulls as the pair fell 0.40% despite the 10-year Treasury yield easing four basis points to 1.08% - down 10 basis points from Tuesday's high nL1N2JO2GV.
The inability to maintain upward momentum suggests the EUR/USD has more downside, but the Dec 21 low at 1.2130 has proven to be stubborn support.
Resistance is found at the 21-day moving average at 1.2226 and a break above that level would suggest the EUR/USD correction lower has run its course.
The favoured strategy is selling a break below 1.2130 or rallies above 1.2200 with a stop-loss above the 21 DMA.
A clear break below 1.2130 targets the 38.2 Fibonacci retracement of the 1.1602-1.2349 November-January rise at 1.2063.
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