EUR/USD Ripe for a Bullish Breakout as US Treasury Yields Dip

Summary:

In this EUR/USD forecast, we explain why the currency paitr is ripe for a bullish breakout ahead of the ECB decision and the falling bond yields

The EUR/USD price rebounded after falling sharply on Friday. It rose from the intraday low of 1.1940 to the current 1.2025 as the dollar sell-off resumed.

What happened: The EURUSD price has been moving sideways lately. Last week, it reacted to the relatively strong US inflation and retail sales numbers. It also reacted mildly to the surprise decline in US initial jobless claims numbers and the EU consumer inflation data.

This week, focus shifts to the ECB interest rate decision that will come out on Thursday. With the European economy in its recovery phase, analysts believe that the bank will leave interest rates where they have been in the past few months. The bank will also likely sound dovish because of the overall slower recovery of the EU economy.

The EUR/USD pair is also rebounding as US bond yields slide. The 10-year Treasury yield has dropped to 1.5623%.

EUR/USD forecast

Turning to the four-hour chart, we see that the EUR/USD pair has rebounded after it tested the important support at 1.1940. The pair formed a small hammer pattern earlier today. It is also attempting to test the upper side of the ascending channel, which is also along the 38.2% Fibonacci retracement level. It is also being supported by the 25-day moving average.

Therefore, now that the EURUSD has moved above last week’s high of 1.1993, we should not rule out a bullish breakout above the upper side of the channel at 1.2050. The alternative scenario is where the pair retests the support at 1.1943.