EUR/USD: Yield differential favors bulls, but caution ahead of G7 could cap gains

• US-German 10-year yield spread continues to narrow in the EUR-positive manner.
• But, caution ahead of G-7 could cap upside in the EUR/USD.
• EUR/USD weekly chart shows a bullish reversal.

The EUR/USD pair traded in a sideways manner around 1.18 in Asia, having clocked a three-week high of 1.1840 yesterday.

The markets have been caught off guard by ECB's hawkish talk. Hence, the spread between the 10-year US-German yield spread could drop further in the EUR-supportive manner. As of writing, the spread stands at 244 basis points - the lowest level since May 15.

Focus on G7 meeting

The news is doing the rounds that French President Macron has called on G7 leaders to resist the US drift towards protectionist policies. So fears are on the rise the G7 meeting could dissolve into bitter fighting over trade. Hence, the pair may find it hard to scale the weekly high of 1.1840.

EUR/USD Technical Levels

The weekly chart shows a bullish doji reversal, meaning the tide has turned in favor of the bulls, at least for the short-term.

Resistance: 1.1822 (May 9 low), 1.1855 (38.2% Fib R of Apr-May sell-off), 1.1948 (50-week moving average).

Support: 1.1757 (5-day moving average), 1.1723 (23.6% Fib R of Apr-May sell-off), 1.1696 (10-day moving average).