EUR/USD fell to a fresh 1-1/2-month low Friday on the back of rising U.S. rates EDZ3 driving broad based dollar buying, with a test of 1.0450/1.0500 possible as yield spreads and technicals present downside risks.
2-year yield spreads US2DE2=RR began trending toward an increasing dollar yield advantage before a consolidation phase began on Feb.
After completing that phase on Thursday, the dollar's yield advantage increased again on Friday, implying it may rise towards 235 bps.
Should Fed rhetoric remain hawkish nW1N32Z01PnW1N33R03H and U.S. data continue to indicate inflation and jobs remain robust the dollar's yield advantage should grow.
EUR/USD technicals highlight downside risks.
Friday's break of the 1.0655/65 support zone completed a head-and-shoulder top pattern, suggesting a fall toward 1.0450 is possible.
Daily and monthly RSIs are falling and are not oversold to indicate downside momentum remains.
The move and hold below the daily cloud top and 23.6% Fibo of 0.9528-1.1034 reinforced bearish signals.
Unless bullish influences underpinning the dollar fade, EUR/USD's risks remain to the downside.
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