EUR/USD: Bearish Structure Amid Drop in GE-US Yield Spreads

Heading into Wednesday, the structure of the market seems to suggest that sellers will ultimately be the side exerting the most pressure, judging by the decline in price that has negated the developing bullish structure and sets into motion, potentially, a test of lower liquidity levels. The velocity of the fall in prices cannot be ignored, and more often than not, when higher levels are re-visited on a more compressive move, as seen, these valuations tend to be rejected.

Aiding to the bearish outlook heading into Wednesday is the downward move in the German vs US yield spread, which makes the case to sell on strength more compelling. One should blend into the mix the steepening of the US yield curve, a precursor of a more hawkish outlook for Fed hikes next year, which should translate into a market that remains broadly supportive of the USD. The stabilization in the Italian vs German yield premium is a marginal positive for the Euro, but the focus is more accentuated in the US fixed income space this week. In the next 24h, intraday traders should still be able to exploit technical/valuation-oriented analysis in the chart, before all the bets go off as the ECB monetary policy meeting on Thursday.