EUR/USD has shown early signs of fatigue following a recent rally, with back-to-back gravestone dojis on the daily chart suggesting the pair may be losing upward momentum. The reversal signals coincide with a pause in the advance of US long-end Treasury yields, despite the Treasury’s announcement of expanded buybacks for longer-dated bonds and Treasury Secretary Scott Bessent’s pledge to outline measures aimed at easing pressure on the long end of the curve.
The pair’s recent correlation dynamics underscore the influence of US rates over EUR/USD, with the five-day relationship between the exchange rate and outright yields strengthening to -0.66, surpassing the +0.62 correlation with the US-German 10-year spread. This shift indicates that the move in EUR/USD has been driven more by US curve dynamics than traditional monetary-policy divergence. Fed pricing, meanwhile, has edged modestly more hawkish in recent sessions, even as the euro advanced.
Technical levels now take center stage. The 1.1670 mark, which has served as both support and resistance this year, is the immediate focus. A sustained break below this level could open the door to short positions targeting the 200-day moving average at 1.1630 and the 38.2% Fibonacci retracement of the January-to-June decline at 1.1614. However, the analysis cautions that reversal signals do not guarantee an actual reversal, as oscillators such as the RSI (14) remain bullish despite mild overbought conditions and the MACD continues to trend higher in positive territory. The conflicting signals underscore the importance of the 1.1670 level in determining near-term direction.
If support holds, bulls may initially target resistance around 1.1700, where the pair stalled twice late last week. Beyond that, 1.1723 and 1.1785 are the next levels to watch, with the latter having capped the pair for several weeks in May. The analysis suggests that the pair’s trajectory this week will likely hinge on developments in US long-end yields and broader risk appetite, rather than front-end policy expectations.
Attention also turns to remarks from Bessent and Federal Reserve Chair Kevin Warsh, whose Jackson Hole appearance on Friday could highlight tensions between Treasury’s activist approach to managing financial conditions and Warsh’s preference for market-driven adjustments. With little insight yet provided on the Fed’s reaction function, the risk of ambiguity in Warsh’s stance remains elevated.
Elsewhere, EUR/JPY has recovered most of its losses from the late-July yen intervention episode, but a doji on Friday at the 186.00 resistance level has raised the prospect of a potential evening star reversal pattern. For now, oscillators remain bullish, keeping buying dips as the favored bias. The 100-day moving average at 184.91 and the 200-day moving average at 184.12 are key levels to monitor if selling pressure were to intensify.
