Yield spreads could be leading the way for EUR/USD
Aug 7 (Reuters) -EUR/USD traded lower on Wednesday, but longs aren't running for the exits as German-U.S. yield spreads US2DE2=RR are likely keeping bulls enthusiastic.
The two-year spread, which EUR/USD is correlated with, recently traded at its tightest since July of 2023 after the most recent U.S. payroll report indicated slower job growth.
Today spreads are widening again which has helped EUR/USD hold above support in the 1.0890/1.0905 area where the August 5 daily low, 5-day MA and 50% Fibonacci retracement of the 1.0778-1.1009 rally sit within.
EUR/USD rallied away from that support zone and long lower wicks formed on the daily candles for the past two sessions which has brought on consolidation of recent gains. This suggests EUR/USD bulls are feeling confident and are buying the dips.
Investors will be focused on Thursday's U.S. weekly and continuing claims reports.
Upside surprises suggesting an acceleration of job cuts could drive U.S. yields US2YT=TWEB lower again as investors may lean toward the Fed cutting 50bps at its September meeting.
Yield spreads may tighten further which could help EUR/USD resume its recent rally and test the 1.1100 area.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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