EUR/USD on solid ground as US Y-yield curve hits fresh 10.5-year low

US Treasury yield curve flattens/drops to lowest since October 2007, could hurt the USD.
Focus on the German Zew survey and US-German 10-year yield spread.

Omkar Godbole FXStreet Contributor

The EUR/USD pair rose to 1.2395 on Monday as the spread between the US 10-year treasury yield and the 2-year treasury yield narrowed to 45.5 basis points - the lowest level since October 2007.

For more than a year, the relentless flattening of the yield curve has hurt the greenback. Also, he Dec20-Mar21 Eurodollar spread has turned negative, meaning the market expects the US rate hike cycle to end in 2021. This is bad news for the USD bulls.

However, that does not necessarily mean the EUR/USD will rally. Moreover, the 10-year US-German yield spread continues to rise in the USD-positive manner. As of writing, the spread stands at 230.6 basis points - the highest since December 2016.

So, the EUR/USD may have tough time revisiting 1.25, unless the yield spread drops in the USD-negative manner. That said, a move above 1.24 cannot be ruled out if the German Zew survey, due at 09:00 GMT, beats estimates.

EUR/USD Technical Levels

Acceptance above 1.24 (psychological hurdle) would open up upside towards 1.2476 (March 27 high) and 1.2538 (Jan. 25 high). On the downside, breach of support at 1.2356 (5-day MA) could yield a drop to 1.2327 (50-day MA) and 1.23 (psychological support).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	Expanding
1H	Bearish	Neutral	Low
4H	Bullish	Overbought	Shrinking
1D	Bullish	Neutral	Low
1W	Bullish	Neutral	Low
Updated Apr 17, 03:30 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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