EUR/USD is rallying off key 1.1100 support as worsening risk sentiment over President Trump's tariff threat to Mexico takes a bigger bite out of U.S. yields. The latest U.S. tariff maneuver has heightened market concerns that global growth will slow further, resulting in sharp drops in global government bond yields.
The U.S. 10-year US10YT=RR has dipped below 2.15% while Germany's 10-year bund traded below -0.21%. German-U.S.
yields spreads have tightened sharply, however, as the sharp drop in the U.S. rate complex has outpaced German rates.
Prices for U.S. short-term rates markets EDZ9 have rallied sharply, implying greater chances of a June 19 Fed rate cut to 19%.
That spread tightening helped EUR/USD rise above the 10-DMA and turn daily RSI up from near oversold territory.
Should U.S. rates plummet further, EUR/USD gains might continue until the June 6 ECB meeting.
Bulls should not be completely confident though.
Downside surprises to May inflation readings for Italy nR1N20Z00J and Germany nL8N2373HA have increased concerns inflation will continue to miss the ECB target which could result in the central bank easing. Any ECB hints in that direction could EUR/USD and possibly push it below 1.1100.