EUR/USD: Wider US-DE yield spreads and risk-off could cap upside ahead of Fed

• The EUR/USD fell on Friday, tracking the 10-year spread between the US and Germany (DE) yield differential.
• The wider yield differentials and potential risk aversion in equities could cap upside in the EUR/USD ahead of the Fed.

The EUR/USD created an inverted hammer on Friday, as the weaker-than-expected September Eurozone PMI readings pushed the US-German yield differentials to new highs.

For instance, the spread between the two-year US treasury yield and German two-year bund yield rose to 336 basis points, the highest since 1988. Further, the 10-year yield spread rose to a new 29-year high of 261 basis points.

The yield differentials could widen further in the EUR-negative manner if the German Zew surveys, scheduled for release at 08:00 GMT, disappoint expectations.

The common currency may also come under pressure if the European and US equities respond negatively to a decision by China to scrap trade talks with the US.

At press time, the currency pair is trading at 1.1740.

EUR/USD Technical Levels

Resistance: 1.1785 (Thursday's high), 1.1803 (Friday's high), 1.1852 (June 14 high)

Support: 1.1720 (5-day moving average), 1.1681 (200-hour moving average), 1.1660 (100-day moving average)