EUR/USD traded higher on Monday, buoyed by tighter German-U.S. yield spreads and a decline in U.S. Treasury yields. The pair reached a three-session high of 1.0595, trading above its 5-day moving average, with rising daily RSI signaling short-term bullish momentum. However, the broader outlook remains cautious as euro area growth concerns persist. The euro’s rally was supported by a weaker U.S. dollar, driven by falling yields and a drop in USD/CNH, as well as risk-on sentiment in equities and gold. Despite the near-term positivity, underlying risks tied to economic data and central bank policy lean bearish.
The euro area November PMIs, particularly for Germany and France, are expected to play a pivotal role in shaping sentiment. ECB policymakers, including Vice-President Luis de Guindos, emphasized concerns over U.S. tariffs and their potential to hamper growth more than inflationary pressures. Bundesbank President Joachim Nagel echoed similar caution, while ECB member Yannis Stournaras suggested that a 25bps rate cut by year-end is reasonable. If PMI data reinforces fears of stagnating growth, markets could price in deeper ECB rate cuts, widening the rate differential in favor of the U.S. dollar.
Technically, EUR/USD’s short-term recovery may face resistance near 1.0600 and the 21-day moving average at 1.0635. Downside risks remain pronounced, with options data indicating strong demand for U.S. dollar calls and elevated risk premiums for euro puts. A breach below 1.0450 could see the pair test parity, especially if PMIs disappoint and reinforce expectations of aggressive ECB easing.