EUR/USD - Bearish bias strengthens? Focus on EZ GDP & Inflation

• EUR/USD risk reversals hit 10-week low, indicate bearish bias
• Weak Eurozone CPI may hurt the EUR

The post-ECB sell-off in the EUR/USD pair ran out of steam at 1.1574 as the spot recovered to 1.1658 on Monday as the US 10-year treasury yield fell below the former resistance-turned-support of 2.4 percent.

The US-German 10-year yield differential narrowed to 200 basis points from Friday's print of 204 basis points.

One-month risk reversals

• EUR/USD risk reversals hit 10-week low of -0.162 and the one-month ATM volatility fell to 6.25; its lowest level since July 17.
• The decline in the risk reversals indicates increased demand for the cheap out of the money Put options (bearish bias), although the drop in the implied volatility indicates a sharp sell-off is unlikely.

Focus on inflation and growth differential

The Eurozone preliminary core CPI is seen rising 1.2 percent y/y in Oct vs. 1.3% previous. Meanwhile, the quarter-on-quarter growth rate is seen slowing to 0.5 percent from 0.6 percent.

A weaker-than-expected CPI and GDP number could see the US-German 10 year yield spread rise in EUR-negative manner.

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "from a technical point of view, Monday's advance seems barely corrective, as the price was unable to surpass the 23.% retracement of the Thursday/Friday slide. In the 4 hours chart, the 20 SMA heads sharply lower above the current level, converging with the 38.2% retracement of the same decline, around 1.1675, while technical indicators have managed to correct oversold conditions, but hold within negative territory. The pair would then need to surpass the 1.1660/70 region to gain further ground on Tuesday, but the most likely scenario is that selling interest will surge around it.

Support levels: 1.1600 1.1575 1.1550

Resistance levels: 1.1665 1.1700 1.1745