EUR/USD - Bull flag breakout or H&S completion?

• EUR/USD conflicting chart patterns.
• Focus on US-DE spread

The EUR/USD rose to 1.1849 yesterday and remained bid in Asia as the 10-year US-German yield spread remains flatlined above 207 basis points despite US tax reform optimism.

Caught in a bull-bear tug of war

The EUR/USD daily chart shows the pair is caught in a bull-bear tug of war as shown by conflicting chart patterns - Bull flag and potential head and shoulders reversal.

A close above 1.1873 would signal a bull flag breakout. It is a continuation pattern, i.e. an upside break would signal a revival of the rally from the Nov. 7 low of 1.1554. The pair could then target 1.2368 (target as per the measured height method).

Also, the chart shows a potential bearish head and shoulders reversal. The Right shoulder of head & shoulders top is still forming, and the neckline support is near 1.1720. A close below 1.1720 would open doors for re-test of the November low of 1.1554.

Focus on EZ data and Weidmann speech

The EUR could find fresh bids if the Eurozone PPI due at 07:00 GMT betters estimates by a big margin. The pair could also be influenced by comments from German Bundesbank's Weidmann and the US existing home sales figure. Bears could make their presence felt if the 10-year US-German yield spread breaks above the recent high of 209.5 basis points. 

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "the EUR/USD pair surged to its highest for the week, trading at the upper end of the past 2-week's range,  limited by 1.1715 and the 1.1870 region, with a clear upward potential according to technical readings in the 4 hours chart, as the price has managed to advance above all of its moving averages that anyway continue lacking directional strength, while technical indicators gained momentum upward above their mid-lines. Still, selling interest has been capping the upside at the mentioned 1.1870 level since early December, and would take a clear break above it to consider a possible upward extension afterward. The US tax reform vote in the US Congress that could take place well after Wall Street's close, however, can give the greenback an unexpected boost that is yet to be seen if it could be sustainable.

Support levels: 1.1800 1.1750 1.1715

Resistance levels: 1.1870 1.1900 1.1940