|

EUR/USD - Focus on US inflation and yield differential

  • The EUR/USD rally has stalled, so yield differential could come into play.
  • An above-forecast US CPI may send risk assets lower, EUR to feel the heat as well, but may outperform other majors.

Traditional FX market correlations like yield differential and exchange rate broke down in the fourth quarter of 2017. Coming into 2017, EUR/USD was solidly bid, despite widening US-DE (German) two-year and 10-year yield spread.

However, the rate differential will likely come into play, given the euphoric rally in EUR/USD seems to have stalled. Since early Feb, the spot has been trading 1.21-1.25 range.

As of writing, the spot is trading at 1.2335 and the 2-year US-German yield spread stands at a record high of 285 basis points (bps).

The spread may rise further in the USD-positive manner if the US February CPI (due at 12:30 GMT) beats estimates. In this case, the EUR/USD could drop below 1.2298, adding credence to Friday's bearish outside day candle.

That said, the common currency could still outperform other majors as the hotter-than-expected US CPI will likely push yields higher and equities lower.

On the other hand, a weaker-than-expected US inflation figure will likely yield broad-based losses in the greenback.

EUR/USD Technical Levels

A break below ascending 50-day moving average (MA) of 1.2284 would shift attention to 1.2206 (Feb. 9 low). A close lower would signal a bullish-to-bearish trend change and could yield a drop to 1.2035 (100-day MA).

On the higher side, a close above 1.2446 (March 8 high) would signal a continuation of the rally from the March 1 low of 1.2154 and allow a stronger rally to 1.25 (psychological hurdle) and 1.2556 (Feb. 16 high).

 TREND INDEXOB/OS INDEXVOLATILY INDEX
15MBearishOversold Expanding
1HBearishNeutral Shrinking
4HBullishNeutral Low
1DBearishNeutral Low
1WBearishNeutral High

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

More from Omkar Godbole
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD bounces toward 1.1750 as US Dollar loses strength

EUR/USD returned to the 1.1750 price zone in the American session on Friday, despite falling Wall Street, which indicates risk aversion. Trading conditions remain thin following the New Year holiday and ahead of the weekend, with the focus shifting to US employment and European data scheduled for next week.

GBP/USD nears 1.3500, holds within familiar levels

After testing 1.3400 on the last day of 2025, GBP/USD managed to stage a rebound. Nevertheless, the pair finds it difficult to gather momentum and trades with modest intraday gains at around 1.3490 as market participants remain in holiday mood.

Gold trims intraday gains, approaches $4,300

Gold retreated sharply from the $4,400  area and trades flat for the day in the $4,320 price zone. Choppy trading conditions exacerbated the intraday decline, although XAU/USD bearish case is out of the picture, considering growing expectations for a dovish Fed and persistent geopolitical tensions.

Cardano gains early New Year momentum, bulls target falling wedge breakout

Cardano kicks off the New Year on a positive note and is extending gains, trading above $0.36 at the time of writing on Friday. Improving on-chain and derivatives data point to growing bullish interest, while the technical outlook keeps an upside breakout in focus.

Economic outlook 2026-2027 in advanced countries: Solidity test

After a year marked by global economic resilience and ending on a note of optimism, 2026 looks promising and could be a year of solid economic performance. In our baseline scenario, we expect most of the supportive factors at work in 2025 to continue to play a role in 2026.

Crypto market outlook for 2026

Year 2025 was volatile, as crypto often is.  Among positive catalysts were favourable regulatory changes in the U.S., rise of Digital Asset Treasuries (DAT), adoption of AI and tokenization of Real-World-Assets (RWA).