EUR/USD drops as political uncertainty grows

The EUR/USD is revisiting Monday’s low of 1.0705 as the heightened political uncertainty in France pushed the France-German yield spread to four-year high.

Focus on German data and bond yield spread

The pace of expansion in German industrial production is seen slowing to 0.3% m/m in December from January’s print of 0.4%. Better-than-expected number may help EUR regain poise, although the fate of the EUR is more dependent on the France-German yield spread.

As per the Bloomberg report, the yield difference between France’s 10-year notes and comparable securities in Germany touched 74 basis points on Monday, shy of the 77-basis-point levels seen in March 2013. The spread has widened 24 basis points this year.

Heightened political risk means increased demand for the safe haven bunds and further widening of the yield spread.

EUR/USD Technical Levels

The spot was last seen trading around 1.0710. A breakdown of support at 1.07 (zero figure) would open the doors to 1.0658 (Jan 26 low), under which a major support is seen at 1.0607 (50-DMA). On the other hand, a breach of resistance at 1.0737 (10-DMA) would expose 1.0754 (5-DMA). On a larger scheme of things, only a daily close above 100-DMA level of 1.0793 would signal the rally from the January low of 1.0340 has resumed.