EUR/USD - Is ‘Double Top’ reversal on the cards?

Friday’s pull back in the EUR/USD pair from 1.1440 to 1.14 levels on the back of a strong US jobs data and a drop to 1.1381 on Monday, when viewed on the daily chart, signals a possibility of ‘Double Top’ reversal pattern. The neckline support stands at 1.1312.

Bullish expanding channel breakout on German 10-year yield

German 10-year yield witnessed breached the expanding channel to the upside, signalling a continuation of the big rally from the July 2016 low of -0.201%. The bullish breakout in the yields is supportive for the EUR… meaning the dips are not to be mistaken for bearish reversal.

Treasury yield curve is steepest since May 16

The dollar side of the story looks strong as well, given the treasury yield curve is currently steepest since May 16. Moreover, the Fed is still the most hawkish central bank out there. The ECB rate hike is at least a year away and the QE Taper is more of a technical necessity. (ECB fell short of German bond purchases for third straight month in June).

Markets on a wait & watch mode ahead of Yellen testimony

Trading volumes are likely to remain low today as investors would prefer to stay on the sidelines ahead of tomorrow’s Yellen testimony (scheduled at 10:00 GMT). A double top reversal could be confirmed if Yellen reiterates Fed’s resolve to carry on with the policy normalization process.

EUR/USD Technical Levels

The spot trades around 1.1393 levels in Asia. The rising trend line drawn from the April 17 low and May 11 low is seen offering resistance around 1.1405 levels. A break above 1.1418 (resistance on a 1 - hour chart) would open up upside towards 1.1445 (recent high) and 1.1460 (trend line resistance on the weekly chart).

On the downside, breach of support at 1.1393 (5-DMA) - 1.1383 (1-hour 100-MA) could yield a sell-off to 1.1312 (double top neckline). An end of the day close below 1.1312 would confirm the bearish reversal and open doors for 1.1186 (upward sloping 50-DMA).