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May 11 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Rally Faces Risk From US Real Yields

By Christopher Romano  —  May 11 - 10:49 AM

EUR/USD rose to a 52-session high on Tuesday but stumbled ahead of its February 26 daily high, resulting in erosion of some gains as emerging risks from U.S. real yields threatened to hinder its progress.

U.S.
10-year TIPS yields and EUR/USD are negatively correlated.
Real U.S. rates US10YTIP=RR peaked at -0.528% on Feb.
25 and lingered just below there for most of March before falling sharply.
The slide pierced the 76.4% Fibo of the January-February rally and hit -0.983% Monday and Tuesday.

As real yields fell EUR/USD rallied just under 4.1% off its March 31 low to trade at 1.21815 on EBS on Tuesday.

U.S.
real yields rallied back above the 76.4% Fibo of the January-February decline and Monday's daily high, generating bullish tech signals for real yields.

A daily bull engulfing candle formed and daily RSI diverged on Tuesday's low.
Both signals occurred near the 76.4% Fibo, enhancing their significance.
The 76.4% level is also a level at which trends either correct or reverse.

Should the bull signals that have emerged for real yields lead to a rate rally, downside risks for EUR/USD should increase.

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Source:
Refinitiv IFR Research/Market Commentary

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