- The US Treasury yield curve flattening continues.
- The 10’s/7’s curve could invert soon – which is widely considered an advance indicator for a US recession.
- Fears of yield curve inversion could put a bid under the EUR/USD pair.
The EUR/USD is on the defensive, having failed to take out the bearish (falling) 5-day moving average (MA) in Asia, however, the pair may pick up a bid in Europe on fears the US treasury yield curve could invert soon.
As of writing, the spread or the difference between the US 10-year treasury yield and the 7-year treasury yield stands at 3.5 basis points and could soon turn negative (inverted yield curve) if the US-China trade tensions escalate.
An inverted yield curve is widely considered as a sign the economy is heading for a recession.
Also, 10’s/7’s curve continues to flatten in the USD-negative manner, i.e. the spread between the 10-year Treasury yield and the 2-year yield fell to 34 basis points in Asia – the lowest level since August 2007.
Hence, the greenback may find offers. That said, only a convincing move above the ECB day high of 1.1852 would put the EUR bulls back into the driver’s seat.
EUR/USD Technical Levels
Resistance: 1.1644 (previous day’s high), 1.1852 (Thursday’s high), 1.1893 (falling 50-day moving average).
Support: 1.1531 (previous day’s low), 1.1510 (May 29 low), 1.1404 (200-week moving average).
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