EUR/USD: 10-yr US-DE yield spread hits four-month high in EUR-negative manner

• The US-German bond yield spreads continue to rise in the EUR-negative manner.
• The common currency could take a beating if the Eurozone consumer confidence, due later today, prints well below estimates, validating the dovish ECB expectations.

EUR/USD could feel the pull of gravity today as the spread between the yields on the 10-year US and German government bond yields continue to rise in the EUR-negative manner.

The yield spread, which stood at 241 basis points on March 22, rose to 259 basis points on Friday, the highest since December, possibly, in response to the data released on the preceding day, which showed the US consumer spending, as represented by the retail sales, rose 1.6 percent in March, the fastest pace in a year and a half, pointing to a stronger economy in the first quarter than previously expected.

The two-year spread, which is more sensitive to short-term rate hike bets, has also increased by nearly 30 basis points over the last four weeks and could rise even further if the Eurozone data, due for release at 14:00 GMT, shows the consumer confidence deteriorated in April. That would further weaken the prospects of the ECB rate hike.

The US housing data for April and the Richmond Fed manufacturing index, due at 14:00 GMT, could also influence the pair. An upbeat data may further bolster the speculation that the US economy is regaining its lost mojo, sending the greenback higher across the board.

Further, the decision by the US to force the Iranian oil imports to zero and the resulting rise in oil and geopolitical uncertainty could weigh over equities and add to the bearish tone around the EUR.

In any case, a big move in EUR/USD looks overdue, as the three-month at-the-money volatility has dropped to the lowest since June 2014.

Technically speaking, that big move could happen to the downside if the bear flag, as  seen in the 4-hour chart – a bearish continuation pattern – is breached to the downside.

EUR/USD is currently trading largely unchanged on the day just above 1.1250.

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