EUR/USD saw a mixed session on Tuesday, driven by geopolitical headlines and yield spread dynamics. Reports of Ukraine targeting a Russian military complex with U.S.-provided missiles initially pushed the pair lower. However, the prospect of limited escalation allowed EUR/USD to recover, with traders refocusing on the narrowing yield and interest rate differentials. The tightening of German-U.S. 2-year spreads to their closest levels since early November reflects a shift in investor expectations, with the Fed's terminal rate now seen lower. This has bolstered EUR/USD, stemming the decline triggered by earlier widening spreads.

From a technical perspective, the support at 1.0450/1.0500 remains pivotal, as it aligns with multi-month lows and represents a psychological barrier for shorts. The tightening in yield spreads and improved sentiment have reduced the probability of a sustained breakdown below these levels. Resistance lies at 1.0600, with stronger barriers near the 21-day moving average at 1.0650. A breakout above these levels could signal a reversal in bearish momentum, supported by potential euro zone data surprises.

The upcoming November euro zone PMI will be crucial for shaping rate expectations and EUR/USD’s near-term direction. If the data suggests economic stabilization or recovery in Europe, further spread tightening could trigger a short squeeze, pushing EUR/USD higher. However, lingering geopolitical risks and weaker-than-expected data could see the pair retest key support levels, keeping traders cautious in the coming sessions.