EUR/USD inter-markets: finding common ground

EUR/USD remains in the middle of the recent range, still unable to break above the key resistance band at 1.0820/50, while sellers could not push further south of the 1.0600 support.

USD-dynamics stay as the exclusive driver behind the pair’s price action, with developments from Trump’s administration and expectations of the timing on the future rate hikes by the Federal Reserve prompting the swings around the buck.

At the moment, CME Group’s FedWatch tool sees the probability of higher rates in March just below 10%, despite recent Fedspeak stressing that a rate hike in March remains ‘on the table’.

Yields in the US money markets keep the rebound from recent lows, mainly looking to Trump’s Twitter account for direction rather than to market expectations of the next rate hike. Yields in Germany are performing no different, although the political factor from upcoming elections in France seems to emerge as the next big driver.  

In any way, yield spreads continue to favour the greenback, and this trend may well pick up pace in the next months, as the Fed stays on its way to tighten further its monetary policy, whereas the ECB is still discussing whether to modify its QE programme.