Technical set-up: EUR/USD
EUR/USD has strengthened materially following news of EU plans to increase defence spending. This has resulted in yields across Europe rising sharply and, more importantly, spreads widening against US Treasuries.
At the same time, US rates have fallen materially as growth fears take hold due to the Trump administration’s new tariff plans. When comparing the chart of 10-year rates between Germany and the US with EUR/USD, it becomes clear that the expansion of these spreads is driving the euro’s strength. Should this trend continue, EUR/USD could rise further.
EUR/USD has cleared some significant levels of support, breaking above $1.05 and then moving above $1.06, which has allowed it to extend beyond $1.08. The currency pair is trading above the upper Bollinger Band and the relative strength index (RSI) is above 70, suggesting that the pair may be overbought. This suggests that EUR/USD could consolidate by trading sideways or testing support at $1.075 soon. A break of support at $1.075 would be bearish and could send EUR/USD back to $1.058.
However, if support holds, EUR/USD could trade higher, especially if the spreads between Germany and the US continue to expand, with the next level of resistance at $1.095. A breakout above $1.095 could lead the EUR/USD to rise to $1.12, the highs last seen in late September.
Written by Michael J Kramer, founder of Mott Capital Management
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
At the same time, US rates have fallen materially as growth fears take hold due to the Trump administration’s new tariff plans. When comparing the chart of 10-year rates between Germany and the US with EUR/USD, it becomes clear that the expansion of these spreads is driving the euro’s strength. Should this trend continue, EUR/USD could rise further.
EUR/USD has cleared some significant levels of support, breaking above $1.05 and then moving above $1.06, which has allowed it to extend beyond $1.08. The currency pair is trading above the upper Bollinger Band and the relative strength index (RSI) is above 70, suggesting that the pair may be overbought. This suggests that EUR/USD could consolidate by trading sideways or testing support at $1.075 soon. A break of support at $1.075 would be bearish and could send EUR/USD back to $1.058.
However, if support holds, EUR/USD could trade higher, especially if the spreads between Germany and the US continue to expand, with the next level of resistance at $1.095. A breakout above $1.095 could lead the EUR/USD to rise to $1.12, the highs last seen in late September.
Written by Michael J Kramer, founder of Mott Capital Management
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
Disclaimer
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.