EUR/USD: Focus on risk assets

• The EUR could extend the two-day winning streak if the European equities pick up a strong bid on reports Trump, Merkel support EU-US trade talks.
• The flattening of the Treasury yield curve may be signaling a US recession, could reinforce dovish turn in Fed expectations.

The EUR/USD pair clocked a 27-day high of 1.1697 in Asia and could rise well above 1.17 in Europe if the risk assets report gains.

At press time, the pair is trading at 1.1672. The retreat from the high of 1.1697 is likely associated with the overbought conditions reported by the 14-hour relative strength index.

That said, the pullback could end up recharging engines for a convincing move above 1.17 as the reports that Trump and Merkel support the EU-US trade talks will likely lift the European stocks. The major European index futures - DAX, CAC, and FTSE - are pointing to a positive open.

What's more, the relentless flattening of the treasury yield curve and the resulting fears of curve inversion - a recession indicator, could reinforce the dovish Fed expectations and add to the bullish tone around the EUR.

However, if the equities respond negatively to the flattening treasury yield curve, then the USD may gain on the safe-haven appeal.

EUR/USD Technical Levels

Resistance: 1.17 (psychological level), 1.1747 (July 31 high),  1.1761 (100-day moving average)

Support: 1.1613 (50-day moving average), 1.1575 (July 19 low), 1.1527 (June 28 low)

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