EURUSD – ‘hold the line’

2月6日

As US economic data continues to come in above expectations and Fed chatter pushes back on imminent rate hikes, we see the yield premium that US Treasury’s hold over German debt blowing out. For example, the yield premium to hold US2yr Treasuries over 2yr German bonds has pushed to 185bp (or 1.85%), having been at 154bp in mid-Jan. This is putting a bid into the USD, with the exchange rate pushing into the December pivot low of 1.0723 and breaking the recent channel lows. By way of momentum, we see that the 2-day ROC has moved sharply lower to -1.20 – consider that since Jan 2023 on the 14 occurrences where the 2-day ROC has pushed below -1, 80% of the occurrences have resulted in a mild short covering rally the following day. The trend, however, suggests this pair trades lower but I would look to initiate new shorts either on a close below 1.0723 or limits into 1.0775.