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Feb 17 - 09:55 PM

EUR/USD - COMMENT-EUR/USD Fate Tied To Fed's Tolerance Of Rising Yields

By John Noonan  —  Feb 17 - 08:22 PM

The bullish case for the EUR/USD has been undermined by a rise in U.S. 10-year Treasury yields and indications the U.S. economy will bounce back faster and more robustly than the euro zone. The euro could trend significantly lower if the Federal Reserve remains tolerant of high long-term yields.

Fed officials including Vice-Chair Richard Clarida have previously pushed back on utilizing yield curve control to hold down long-term rates nN9N2HE02EnL1N2FL1L3. It appears unlikely the Fed will act to temper a rise in long-term yields unless there is evidence it puts the U.S. economic recovery at risk and/or causes unwanted volatility in financial markets.

If risk assets start to wobble due to rising long-dated U.S. yields, the dollar would benefit from safe-haven flows.
If risk assets remain resilient and the Fed allows 10-year yields to track towards 1.50% in the coming weeks, EUR/USD longs will struggleas long-term EZ yields remain in negative territory.

Support for the EUR/USD comes in at the 100-day moving average around 1.2000 and a break below targets the Feb 5 low at 1.1952.
An eventual test of the 61.8 Fibonacci retracement of the November-January rise at 1.1887 can't be ruled out while the 21 DMA (1.2096) caps rallies.

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Source:
Refinitiv IFR Research/Market Commentary

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