EUR/USD fell below the 23.6% Fibonacci retracement of the 1.0448-1.1017 rally and November 23 daily low to strike a 7-session low as investors expectations for Fed and ECB monetary policies weigh and longs will need to be aware of two key influences should those expectations persist.
German DE2YT=RR and U.S. US2YT=RR 2-year yields have been trending downward but German yield drops outpaced U.S. drops which widened the dollar's yield advantage over the euro to help pressure EUR/USD downward.
2-year spreads US2DE2=RR struck their widest since November 17.
Since late August spreads have been trading within a rising channel.
The channel base is coming into focus and a break of that base could lead to a sharp EUR/USD drop.
Investors need to be aware of euro positioning as well.
The latest CFTC report indicated an increase in net-long euro positions, which have reached their highest since early September.
If EUR/USD cannot rally, reduction of those longs may ensue and add bearish pressure on EUR/USD.
Eikon's interest rate probabilities page IRPR shows investors expect the ECB's first cut in March and the Fed's first cut in May.
If the Fed doesn't lean dovish soon, expectations for the first cut may get pushed back and EUR/USD's downside risk may remain elevated.
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