The Euro has rallied recently on the USD but the rally looks set to fade in our view due to bond yields which will continue to support the USD and cap euro strength. Below a round up of the big fundamentals, sentiment and key technical levels to look out for…
Bond Yields US V EU
The USD has been supported by rising bond yields and while last week we saw the US 10 Year note finish off its highs, the spread between the 10 year and German bunds continues to widen
Economic Grow Expectations – 3 Charts to Keep In Mind
The reason for US bonds being firm and above euro zone bonds is due of course to the inflation outlook and the fact that the US economy is out performing the EU and this trend will continue – If we look at relative economic growth expectations on the chart below v EUR /USD has more downside. The divergence between US and EU growth looks set to widen as the EU still lags both the US in terms of vaccinations. Finally a look at consumer confidence shows a big divergence between the outlook of US and EUR consumers and with good reason in our view.
Sentiment – Still Bullish the EUR Despite a 500 Pip Fall This Year
If we look at sentiment speculators still remain bullish the Euro on the COT Net Traders Positions and while the long position at the start of the year has been reduced, it still remains sizeable which points to more weakness in the EUR.
Technical Analysis – Key Support and Resistance Levels
In terms of the weekly chart, key resistance is at 1.1900 and in terms of a downside target, we would expect a run down to 1.100. On the daily chart, we view the EUR as a sell back below 1.1800 or if we break first level resistance at 1.1860 above the 20 day MA we would look to sell weakness off the key 1.1900 level. A close above 1.1940 would negate the bearish View.
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