EUR/USD: Two-year US-DE yield spread hits fresh multi-decade high, focus on Fed

The relentless widening of the US-German (DE) yield spread indicates that markets have priced-in Fed's gradual path of tightening.
The EUR/USD could catch a bid wave if the Fed sounds dovish.

Omkar Godbole FXStreet Contributor

The EUR/USD is currently sidelined around 1.1765 and could pick up a strong bid if the Fed reaffirms gradual rate hike path.

Indeed, the central bank is set to raise rates by 25 basis points today, however, markets seem to have priced-in two more rate increases this year.

This is evident from the relentless rise in the US-German yield differential. For instance, the two-year yield spread, which is more sensitive to interest rate expectations, has gone up by 84 points this year. Further, it has increased by 16 basis points in the last four weeks.

Clearly, the gradual rate hike path is baked in, hence the rate hike is unlikely to push the EUR/USD lower. The USD may rise across the board only if the Fed signals low tolerance for above-target inflation and willingness to push rates above the neutral level of 2.87 percent.

EUR/USD Technical Levels

Resistance: 1.1815 (weekly high), 1.1852 (June 14 high), 1.1945 (200-day moving average)

Support: 1.1713 (ascending 10-day moving average), 1.1658 (100-day moving average), 1.16 (psychological level)

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	Expanding
1H	Bullish	Neutral	Low
4H	Bearish	Neutral	Low
1D		Neutral	Expanding
1W	Bullish	Neutral	Low
Updated Sep 26, 04:15 GMT

Author

Omkar Godbole

FXStreet Contributor

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

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