EUR/USD shorts may tread cautiously even as global tensions rise
Nov 19 (Reuters) -EUR/USD took a topsy-turvy ride lower on Tuesday on reports Ukraine struck a Russian military complex with U.S. ATACMs missile but most of the drop was recouped on the prospect tensions won't increase, which left investors to re-focus on bullish yield influences.
Yield and interest rate spreads between the U.S. and euro zone have a major impact on EUR/USD's direction.
Since mid-September spreads had been trending toward an increase in the dollar's yield advantage over the euro, contributing to EUR/USD's fall from above 1.1200 and dip below 1.0500.
Spread widening halted last week, and subsequent tightening has helped stem EUR/USD's fall.
U.S. June 2026 SOFR SRAM26 futures prices rose sharply away from the 76.4% Fibo of the April to September rally and structural support near 96.05 as investors priced in a lower terminal rate for the Fed.
That rally tightened Fed and ECB FEIZ5 terminal rate spreads to -185bps from -202bps last week.
German-U.S. 2-year yield spreads US2DE2=RR traded at their tightest since Nov. 8.
Investors are likely to turn their focus to rate differentials and the upcoming November euro zone PMI if geopolitical tensions do not escalate.
Data suggesting Europe's economy is no longer slowing or is improving could lead to further spread tightening, which could result in a short squeeze as the probability of breaking below 1.0450/1.0500 decreases.
For more click on FXBUZ
SRAM26 https://tmsnrt.rs/3UViSCA
deus https://tmsnrt.rs/3ABjnLm
sramfiez https://tmsnrt.rs/40Xr49d
eurusd https://tmsnrt.rs/3B0Km2O
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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