|

EUR/USD rally contradicts the uptick in two-year US-DE yield spread, focus on US retail sales

  • The EUR/USD jumped 74 pips yesterday, strengthening the short-term bullish technical setup.
  • The bullish move, however, contradicts the rise in the two-year US-Germany bond yield spread to fresh multi-decade highs.
  • A below-forecast US retail sales could accentuate the bullish pressure around the EUR/USD.

The EUR/USD has found acceptance above the 100-day moving average for the first time since April 25.

The common currency picked up a strong bid yesterday after the European Central Bank (ECB) sounded optimistic about prospects for inflation, bolstering the already bullish technical setup: the falling wedge breakout and the ascending 5-day and 10-day moving average (MAs).

So, it seems safe to say that the path of least resistance is on the higher side. However, the bullish technical setup contradicts the widening US-Germany (DE) yield differential. For instance, the two-year yield spread has risen to 331 basis points today - the highest level since 1989. As a result, the rally looks unsustainable.

That said, the pair could continue to defy the USD-positive yield spread if the risk assets remain well bid and more importantly, the US August retail sales figure prints below estimates.  

The data, scheduled for release at 12:30 GMT, is expected to show that consumption, as represented by retail sales, rose 0.4 percent month-on-month in August, following a 0.5 percent rise in July.

Moreover, an above-forecast reading would reinforce expectations that domestic demand would cushion the US economy from external shocks and could put a bid under the USD. On the other, a weak figure could force the investors to scale back the expectations of faster Fed rate hikes.

At press time, the currency pair is trading at 1.1695

EUR/USD Technical Levels

Resistance: 1.1733 (Aug. 28 high), 1.1791 (July 9 high), 1.1852 (June 14 high)

Support: 1.1677 (100-day moving average), 1.1641 (5-day moving average), 1.1621 (10-day moving average)

 TREND INDEXOB/OS INDEXVOLATILY INDEX
15MBearishNeutral Expanding
1HBullishNeutral Low
4HBullishOverbought Expanding
1DBullishNeutral Shrinking
1WBearishNeutral Low

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:

Editor's Picks

AUD/USD flatlines as US yield ripples meet RBA hawks

The Australian Dollar is virtually unchanged against the US Dollar on Wednesday amid a light economic calendar, with the US Treasury's announcement of a buyback for the September 10 auction boosting the Greenback. The AUD/USD trades at 0.7219, flat.


USD/JPY rises above 153.50 on renewed USD strength

USD/JPY shakes off the bearish pressure and trades above 153.50 in the American session on Wednesday. The US Dollar (USD) stages a rebound following the US Treasury buyback announcement and helps the pair gain traction. Nevertheless, solid Japanese data reinforce expectations that the BoJ will continue normalising monetary policy, lending further support to the Yen and capping the pair's upside for now.

Gold regains balance above $4,400

Gold rebounds on Wednesday, snapping a three-day losing streak and reclaiming the are beyond the key $4,400 mark per troy ounce. The precious metal’s bounce comes amid further selling pressure on the US Dollar and steady uncertainty on the geopolitical front.

Bitcoin and Gold Outlook: BTC and XAU kick-start recovery ahead of key economic events
Bitcoin (BTC) holds above $79,000, maintaining resilience on Wednesday as the broader cryptocurrency market consolidates gains. Gold (XAU) is steady above $4,400, underpinned by a measured shift toward risk-on sentiment among investors.
Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight
The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.
Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight
The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.