EUR/USD: US-DE yield spread hits 18-month low, will it break above 200-day MA?
|- Two-year US-German (DE) yield spread hits lowest since December 2017.
- EUR/USD could rise to the 200-day MA at 1.1372 in short-term.
- A break above the key average may remain elusive as markets may have overpriced Fed rate cuts.
The narrowing US-German bond yield differentials indicate the path of least resistance for the EUR/USD pair is on the higher side.
The spread between the two-year US and German government bond yields fell to 250 basis points on Friday, the lowest level since December 2017.
Notably, the spread has dropped sharply from 300 basis points to 250 basis over the last three weeks, as markets pulled forward expectations of Fed rate cuts to July.
As a result, the EUR/USD pair could test the 200-day moving average (MA), currently located at 1.1372, in the next few days. The technicals are also painting a bullish picture with the daily chart reporting a double bottom breakout.
However, the rise to the 200-day MA, if any, could be short-lived, as analysts at Goldman Sachs believe the markets have run ahead of themselves in pricing aggressive rate cuts and the central bank will likely stand pat for the rest of the year.
As a result, the yield differential may recover somewhat in the USD-positive manner, making it hard for the bulls to force a convincing break above the 200-day MA.
The currency pair is currently trading at 1.1315, having hit a high of 1.1348 on Friday. The Eurozone data docket is light today with just Sentix Investor Confidence (Jun) scheduled for release at 08:30 GMT.
Pivot levels
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.