EUR/USD: Trades below 50% Fib, Recession fears and Brexit uncertainty may keep EUR under pressure

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  • EUR/USD has retraced 50 percent of the rally from 1.1176 to 1.1448 and could drop further on recession fears. 
  • German 10-year bond yield has fallen below zero for the first time since 2016. 
  • A section of the US yield curve has inverted for the first time since 2007, bolstering recession fears. 
  • The EUR may also feel the heat of Brexit uncertainty. 

EUR/USD closed well below 1.1312 (50% Fib R of 1.1176/1.1448) on Friday, confirming a bearish inside day reversal and was last seen trading at 1.13. The shared currency may fall further toward 1.1234 on recession fears and Brexit uncertainty. 

A widely followed section of the US treasury yield curve – the spread between the 10-year and three-month bond yields – turned negative on Friday, triggering recession fears. Further, the German 10-year bond yield turned negative for the first time since 2016, sending the US-DE 10-year yield spread higher by almost seven basis points. 

As of writing, the futures on the S&P 500 are down 0.45 percent and major Asian indices are flashing red, meaning the risk-off mood is intact. The EUR, therefore, could extend Friday’s decline, more so, due to Brexit uncertainty. 

Britain’s new departure date of May 22 will apply if parliament approves Prime Minister Theresa May’s deal, which has already faced two major defeats. The plan will be put to vote for the third time this week. If it fails, Britain will have until April 12 to offer a new plan or decide to leave the EU without a treaty, according to Reuters. The reports are doing the rounds that the odds of a no-deal Brexit are rising.

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