EUR/USD's lack of bullish action in an upbeat risk environment could be a warning sign for investors positioned long the pair.

Despite a generally positive atmosphere in financial markets Tuesday, where the U.S. dollar and oil weakened and riskier assets like gold, silver and stocks rallied, the EUR/USD bulls showed limited enthusiasm. This muted response may signal that investors are increasingly wary of several bearish factors impacting the euro.

The widening of U.S.-German 2-year yield spreads, which has been occurring since late April, has bolstered the dollar's yield advantage over the euro. This widening is now threatening the tightening trend that's been in place since May 2025, and further tightening could amplify bearish sentiment for EUR/USD.

Additionally, options markets are reflecting a cautious outlook, with EUR/USD risk reversals indicating vol premiums for 1-month and 3-month puts excede premiums for calls as investors are hedging against potential downside risks.

The upcoming U.S. employment data, including weekly jobless claims and the April ADP and payroll reports, may also play a pivotal role in shaping market sentiment. Should these reports show resilience in the job market, it could lead to wider yield spreads in favor of the dollar, further entrenching bearish momentum. A decisive move below the 1.1650-1.1680 range could invite further selling pressure, bringing the March monthly low into focus for traders.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)