EUR/USD - US-German yield spread rises & Vols drop, slow decline on the cards?

Widening US-German 10-year yield spread likely keep EUR under pressure
Vols continue to drop ahead of the ECB

Omkar Godbole FXStreet Contributor

EUR/USD traded in the narrow range of 1.1790-1.1740 on Tuesday as the widening US-German yield spread capped gains. The currency pair was flatlined in Asia around 1.1750 levels in Asia.

Yield spread at highest since June 12

The difference or the spread between the US 10-year treasury yield and the German 10 year bund yield currently stands at 194.4 basis points; its highest level since June 12.

Vols drop

The one-month ATM volatility continues to lose height. It topped out at 8.47 in early September and now hovers around 6.55 levels.

The rising yield spread and the decline in volatility indicates the EUR/USD could keep trade in the sideways manner with a bearish undertone ahead of tomorrow's ECB decision.

EUR/USD Nov expiry options open interest activity shows increasing demand for put options. Thus a drop to the head and shoulders neckline level of 1.1660 cannot be ruled out.

Focus on US durable goods orders

A better-than-expected US core durable goods orders figure could help the US 10-year treasury yield build momentum above the key resistance of 2.4 percent. That would open doors for a another leg lower in EUR/USD.

EUR/USD Technical Levels

The spot was last seen trading at the 1-hour 100-MA support of 1.1757. A break below 1.1725 (Oct 23 low) would expose 1.1668 (100-DMA) and 1.1660 (head and shoulders neckline). An end of the day close below 1.1660 would open up downside towards 1.1228 (target as per the measured height method).

On the higher side, a move above 1.1789 (1-hour 200-MA) if accompanied by narrowing of the US-German yield spread, could yield a sustained rally to 1.1832 (Sep 29 high) and 1.1846 (50-DMA).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bearish	Neutral	Shrinking
1H	Bullish	Neutral	Low
4H	Bearish	Neutral	Low
1D	Strongly Bearish	Neutral	Low
1W	Bearish	Neutral	Shrinking
Updated Oct 25, 03:15 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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