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  • Oversold conditions persist, but corrective rallies remain elusive, possibly due to Italian political uncertainty and trade tensions.
  • An above -forecast preliminary PMI readings could put a bid under the EUR.
  • Caution ahead of the Fed minutes release could cap upside in EUR/USD.

The EUR/USD is now oversold for more than 20 days, as per the 14-day relative strength index (RSI).

Still, the corrective rallies remain elusive, possibly due to the political uncertainty in Italy. The heavily indebted nation will be governed by anti-establishment 5-Star Movement and the far-right League. The markets are worried the populist government’s fiscal loosening plans will have a negative impact on its credit rating.

Meanwhile, trade tensions are not helping the matters either. The reports are doing the rounds that President Trump is considering a 10 percent reduction in steel and aluminium imports from the European Union.

That said, a corrective rally could be seen today if the German and Eurozone preliminary PMI numbers better estimates. However, there is limited upside as upbeat PMI numbers alone are unlikely to boost the ECB tightening sentiment. Further, caution ahead of the Fed minutes release will likely keep the dollar bears at bay.

EUR/USD Technical Levels

The bias remains bearish as the 5-day moving average (MA) and the 10-day MA continues to drop in the EUR-negative manner. Acceptance below 1.1717 (Monday’s low) would provide more power to the bears and could yield a drop to 1.1669 (Oct. 6 low). A violation there would expose next major support seen at 1.1574 (Oct. 27 low).

Meanwhile, resistance is lined up at 1.17832 (10-day MA), 1.1915 (Jan. 9 low), and 1.1961 (Nov. 27 high).