EUR/USD: Renewed fears of curve inversion may weigh over the greenback

• Fed signaled two rate hikes for 2019, pushing markets behind the curve. As a result, the spread between the 10- and two-year Treasury yield will likely resume the drop.
• The renewed fears of curve inversion could push the EUR/USD higher.
• The bulls need a daily close above the 55-day EMA.

The EUR/USD pair is currently trading at 1.1382 could make another attempt at scaling the crucial 55-day exponential moving average (EMA) hurdle later today as Fed’s hawkish hike may hasten curve inversion.

The US central bank hiked rates by 25 basis points yesterday as expected, but also signaled that interest rates could be hiked two times next year. Somehow markets were convinced that the central bank would pause rate hikes or at most hike rates by 25 basis points in 2019.

Simply put, markets are now behind the curve. As a result, the short-term bond yields could rise sharply, leading to a faster drop in the spread between the 10-year and two-year Treasury yield and renewed fears of curve inversion.

An inverted curve is widely considered an indicator of recession. The USD, therefore, could be offered across the board due to heightened odds of curve inversion. As of writing, the spread stands at 10 basis points.

Technically speaking, the EUR/USD pair still lacks clear direction and a bull breakout would be confirmed if and when the pair closes above the 55-day EMA, currently at 1.1408.

EUR/USD Technical Levels