EUR/USD: Bearish monthly close, but China stimulus talk could shake out weak bears

• The EUR/USD’s close below the 50-month MA is bearish.
• The bearish technical development is backed by widening the US-German (DE) yield differential.
• China stimulus talks and the resulting risk-on could see EUR/USD revisit the 50-month MA.

The EUR/USD pair closed well below the key support of 50-month simple moving average (SMA) yesterday, signaling a resumption of the sell-off from the February high of $1.2556.

The greenback surged across the board yesterday after the official data showed that pay for US workers rose 0.9 percent from July to September, pushing yearly earnings growth to the highest level since the 2008 recession.

Meanwhile, the spread between the 10-year US treasury yield and its German counterpart increased to 278 basis points – the highest level since 1989.

The combination of the widening US-DE yield spread and a bearish monthly close indicates that for the EUR, the path of least resistance is on the downside.

However, despite bearish expectations, the pair may shake out weak bears by revisiting the 50-month SMA of 1.1370 today, as the European and the US equities are likely to cheer China stimulus talks.  

EUR/USD Technical Levels