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EUR/USD – Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

EUR/USD – Bond market sending mixed signals, focus on the Spanish / Catalonia standoff

The EUR/USD pair fell to a 5-day low of 1.1775 in Asia on reports that US President Donald Trump was impressed with Stanford University economist John Taylor during an interview for Fed Chair. Taylor is widely believed to be more hawkish than Yellen.

US-German 10-yr yield spread rises

The spread or the difference between the US 10-year treasury yield and German 10-year bund yield currently stands at 192 basis points; the highest level since mid June. The widening of the spread adds credence to the drop in the EUR/USD pair.

However, the treasury yield curve (difference between the 10-year yield and the 2-year yield) fell to 76 basis points; the lowest level since August 2016. Flattening of the yield curve is dollar bearish.

On the surface, it does appear that the bond markets are sending mixed signals. As of now, the flattening of the yield curve is being overshadowed by  the widening of the US-German yield spread.

Looking ahead – Eyes will be on the Spanish/Catalonia standoff whereby the Spanish has given Catalonia until Thursday to drop their independence campaign. On the data front, German and Eurozone survey and US industrial production could move the market.

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Benarik writes, “from a technical point of view, the pair has made little progress during the last two sessions, still trading in the red when compared to Friday’s close. In the 4 hours chart, the price has managed to regain ground above a bearish 100 SMA, but still below the 20 and 200 SMAs, while technical indicators remain within negative territory, losing the limited upward strength they presented earlier today. The upward scope seems limited by selling interest on approaches to 1.1820, and seems there won’t be today a trigger that can push the level beyond it. If it happens, however, the pair has scope to extend its gains up to the 1.1850 region. To the downside, the 50% retracement of the latest bullish run stands at 1.1775,  while the pair has a static support a few pips below the level, in the 1.1760 region. Below this last, the 1.1720 comes next ahead of the critical 1.1660 region.”

TREND INDEX OB/OS INDEX VOLATILY INDEX
15M Bullish Neutral High
1H Bearish Neutral Expanding
4H Bullish Neutral Shrinking
1D Bullish Neutral Low
1W Bullish Neutral Shrinking
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