EUR/USD: Upside gathering steam as yield differentials roll over in favor of the EUR

The EUR/USD closed above the key 38.2 percent Fib retracement yesterday, validating the falling wedge breakout witnessed on Nov. 16.
The EUR is showing resilience to risk aversion and renewed US-China trade tensions, possibly due to favorable developments in the bond markets.

Omkar Godbole FXStreet Contributor

The EUR/USD is looking north amid risk aversion in the financial markets.

The common currency closed above 1.1445 - 38.2 percent Fibonacci retracement of 1.1815/1.1215 - validating the bullish view put forward by the falling wedge breakout on Friday. The tide has indeed turned in favor of the bulls.

Notably, the currency pair is capitalizing on the bullish breakout despite the renewed US-China trade tensions and the risk aversion in the global equity markets.

The EUR's resilience to the risk aversion could be associated with a decline in the US-German yield differential. For instance, the 10-year spread between the 10-year US and German bonds fell to a one-month low of 270 basis points yesterday.

However, the spread between the 10-year Italian government bond yield and its German counterpart is closing at the recent high of 325 basis points. The common currency's bullish action could come to a screeching halt if the spread breaks above recent highs, reflecting rising concerns about Italy's fiscal health.

Apart from bond yields, the common currency could also respond to sound bites flowing in from the Eurozone finance ministers' meeting scheduled today.

EUR/USD Technical Levels

EUR/USD

Overview:
    Last Price: 1.1446
    Daily change: -6.0 pips
    Daily change: -0.0524%
    Daily Open: 1.1452
Trends:
    Daily SMA20: 1.1374
    Daily SMA50: 1.1509
    Daily SMA100: 1.1561
    Daily SMA200: 1.1811
Levels:
    Daily High: 1.1466
    Daily Low: 1.1394
    Weekly High: 1.142
    Weekly Low: 1.1216
    Monthly High: 1.1625
    Monthly Low: 1.1302
    Daily Fibonacci 38.2%: 1.1438
    Daily Fibonacci 61.8%: 1.1421
    Daily Pivot Point S1: 1.1409
    Daily Pivot Point S2: 1.1365
    Daily Pivot Point S3: 1.1336
    Daily Pivot Point R1: 1.1481
    Daily Pivot Point R2: 1.1509
    Daily Pivot Point R3: 1.1553

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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