EUR/USD: 50-day SMA hurdle may hold on widening Eurozone periphery bond yield spreads

EUR/USD: 50-day SMA hurdle may hold on widening Eurozone periphery bond yield spreads

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  • EUR/USD eyes 50-day SMA after Monday’s 0.5% gain. 
  • Rising periphery-Germany yield spreads may cap gains around 50-day SMA. 
  • The data calendar is light, EUR is at the mercy of dovish ECB expectations. 

Having risen by nearly 0.5% on Monday, EUR/USD now looks set to test the 50-day simple moving average (SMA) located at 1.1794. However, a convincing break above the key average hurdle may remain elusive, as the Eurozone periphery-German bond yield spreads are widening.

The Italian-German 10-year bond yield spread, also known as Italy’s risk premium, rose by seven basis points to 1.34 basis points, according to data source TradingView. Meanwhile, Spain’s risk premium increased by over four basis points, and France’s rose by 1.5 basis points.

The risk premiums increased as investors rotated money into the safe-haven German bonds on fears of a deeper coronavirus-induced economic recession.

That trend is likely to continue as many Eurozone countries are reimposing lockdown restrictions. “Several Spanish regions toughened their coronavirus restrictions on Monday, seeking to curb the second wave of contagion that looks set to drive the country with Western Europe’s highest caseload above one million infections this week,” the Singapore-based news agency CNA noted.

As such, the EUR may have a tough time scaling the 50-day SMA hurdle. That said, the common currency could remain well supported if the European stock markets pick up a bid, tracking the uptick in the S&P 500 futures.

The Eurozone data calendar is light. In the North American session, the pair may take cues from the US Housing Starts and Building Permits data. At press time, EUR/USD is trading at 1.1775, having put in a low of 1.1764 early Tuesday.

Technical levels

Credit: FX Street

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