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  • EUR/USD drops to lowest since Sept. 28, extending the previous week’s decline. 
  • Markets offer euros as yield differentials widen in favor of the US dollar. 
  • The US election uncertainty could keep haven assets better bid. 

EUR/USD is extending its recent downtrend, tracking a continued widening of the US-German bond yield differential. 

At press time, the pair is currently trading at 1.1633, the lowest since Sept. 28, having declined from 1.1860 to 1.1640 last week. 

EUR losing its shine

The spread between the 10-year US and German bond yields rose to 150 basis points early Monday to register the highest level since March 17. 

Notably, the differential has widened by nearly 30 basis points in the past four weeks, making the EUR look unattractive against the greenback. 

The widening of the bond yield spread could be associated with signs of deflation in the Eurozone and the recent resurgence of coronavirus, which has forced major nations like Germany and France to reimpose the economically-painful lockdown restrictions and ramed up dovish European Central Bank expectations. 

These factors could continue to weigh over the EUR in the short-run. Volatility may remain subdued while heading into Tuesday’s US presidential elections but may rise if results are contested and dragged on for weeks. 

Data wise, the focus will be on the final Eurozone PMIs during Monday’s European trading hours. In the US session, the focus will be on the US ISM Manufacturing data for October. 

Technical levels