FRENCH YIELDS TOP 5% FOR FIRST TIME SINCE 2002 AS MOODY’S REVIEW LOOMS
EUR/USD trades just below 1.1250, with four rallies since October 2 each reaching a lower high. France’s 10-year government bond yield briefly moved above 5% on Wednesday for the first time since 2002, while the spread over Germany’s 10-year yield, near 3.4%, widened to approximately 1.6 percentage points, its widest since 2012.
The French spread is weighing on the Euro, with government debt approaching 120% of GDP. Moody’s is scheduled to review France’s credit rating on Friday. Under EU rules, sovereign rating decisions are published after European markets close, so EUR/USD trades Friday’s PMIs without the rating decision and opens on Monday with it.
Markets price approximately a 95% probability of the ECB holding rates on October 29, while the probability of the Fed keeping rates unchanged at its October 28 meeting stands near 86%. The ECB’s deposit rate is 2.50%, while the Fed’s target range is 3.75%–4.00%. Both central banks are expected to hold in October and raise rates in December, leaving the rate gap little room to move before then.
Eurozone inflation reached 3.8% year-on-year in September, while inflation excluding energy, food, alcohol and tobacco stood at 2.5%. Energy inflation was 18.9% year-on-year.
Friday’s data calendar includes preliminary Eurozone HCOB Manufacturing and Services PMIs, forecast at 52.8 for both sectors, compared with previous readings of 52.9 and 53.0, respectively. US S&P Global PMIs follow later in the day, with manufacturing forecasts at 55.6 and services at 57.9.
From a technical perspective, 1.1250 remains the immediate resistance level. On the downside, support at 1.1200 is followed by 1.1150 and 1.1100. The daily Stochastic RSI has climbed to around 62 from near zero in mid-October. A daily close above 1.1300 would end the bearish view.
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