EUR/USD to closely track 2Y yield spread and trade related headlines
- The 2-year US-German (DE) yield differential rose to fresh highs since 1989 on Tuesday. That could weigh over the EUR.
- The Eurozone data docket is thin, so trade-related headlines and the action in the equity markets could influence the common currency.
The EUR/USD closed at 1.1604 yesterday, having hit an intraday high of 1.1644 and was last seen trading on a weaker note at 1.1586.
The retreat from the highs seen yesterday is likely associated with the rise in the US two-year yield to the highest level since 2008. Further, the 10-year treasury yield rose to five-week highs in the USD positive manner.
More importantly, the spread between the US two-year treasury note and its German counterpart jumped to 330 basis points, its highest level since 1989.
The common currency could remain on the defensive if the yield spread continues to rise today. The European data docket is thin, hence the focus remains on the trade-related headlines and the sentiment in the equity markets.
Wall Street Journal (ESJ) reported yesterday that China has assured the US multinationals that they would not be targeted in the ongoing trade war with the US. The easing in US-China tensions could stabilize the risk sentiment and offer help to the EUR. Also, a potential corrective rally in the EM currencies could help stabilize the risk sentiment.
EUR/USD Technical Levels
Resistance: 1.1606 (10-day moving average), 1.1659 (Sep. 6 high), 1.1733 (Aug. 28 high)
Support: 1.1568 (38.2% Fib R of Aug. 15 low/Aug. 28 high), 1.1526 (Sep. 9 low), 1.1508 (June 21 low)