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EUR/USD drops 0.30 percent as the yield differential widens

EUR/USD drops 0.30 percent as the yield differential widens

  • EUR/USD drops on US tax reform news
  • US-German 10-year yield spread widens, currently at levels last seen in May

EUR/USD fell more than 0.30 percent in Asia to low of 1.1807 as the US Senate approved budget in crucial step forward for Republican tax cuts.

The tax reform news pushed up the Treasury yields, resulting in widening of the US-German 10-year yield spread.

  • The spread currently stands at 196 basis points; the highest since mid-May.

Ahead in the day, the USD may remain well bid on the back of the tax reform news. The Eurozone producer price index data and current account data are unlikely to move EUR pairs in a big way.

Kathy Lien from BK Asset Management writes, ” Fed Chair Yellen will speak today, but not until markets close so most of the day will be spent guessing whether she will be more hawkish or dovish. Chances are there will be limited new position taking ahead of her lecture on monetary policy since the financial crisis.”

EUR/USD Technical Levels

The spot was last seen trading around 1.1815 levels. James Chen from shares his view on EUR/USD-

“EUR/USD is trading just under its 50-day moving average and between key price levels around the 1.1700 support area to the downside and the 1.1900 resistance area to the upside. The ECB decision next week will help dictate if and in what direction the euro may break this trading range. A likely scenario is that the central bank may advocate a more gradual tapering process over a longer period of time than expected, in part to avoid further euro strengthening. If this is the case, the euro could take a hit and EUR/USD could stumble, especially if Fed-driven dollar support resumes. In this event, a EUR/USD breakdown below 1.1700-area support could pressure the currency pair towards key downside targets around the 1.1600 and 1.1450 support areas.”

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