The Euro bulls finally gave up the 1.1160 support level on rising German recession fears. The spread between the German 10 and 2-year Bund yields narrowed to 22 basis points yesterday, the lowest level since 2008. More importantly, the spread has dropped more than 60 basis points this year. The relentless flattening of the yield curve to the levels last seen in 2008 indicates the recession fears are rising and traders are losing hope of a sustained rise in inflation and growth. Today, the US will publish the Retail Sales and Philadelphia Fed Manufacturing Index data, any surprise to the upside will trigger the anticipated sell-off on this pair, pushing the Single currency towards 1.1110 and possibly 1.1027.
The Euro bulls eventually surrendered the 1.1160 support level after six consecutive rejection days at the 200-day moving average. The sentiment tilted to the bears’ side as the sellers are looking to retest 1.1110 in today’s session. If broken, then their next target will be the yearly low 1.1027. The bulls on the other hand, need to break back above 1.1160 to stop the bearish domination, but 1.1250 remains the major level to break to regain full short-term control.
Support: 1.1110 / 1.1027
Resistance: 1.1160 / 1.1250