Independent Analyst: Thibault Moirez
Date: 12 Januari 2021
The Euro continued to fall against the US Dollar at the start of the trading week with the EURUSD trading at its lowest levels since the pre-December rally. The pair is down by 2 percent week over week as US Treasury yields continue to widen, keeping the Euro under pressure for a third consecutive session.
The yields on US Treasury bills have been driving markets in the past sessions as the rate on the longer term 30-year bond is edging closer and closer to the 2 percent mark. The yield on the 10-year bill is moving higher as well, now trading at 1.132, but the spread between the 10- and 30-year bonds has widened to its steepest level since late March.
One of the main drivers behind the movement in the Treasury market has been US president-elected Joe Biden stating that, with control of both chambers of Congress, he intends to push through with trillions of extra pandemic-relief spending once he takes office on January 20th.
Typically, one would expect to see a weakening US Dollar in response to rising inflationary trends post-stimulus. However, with traders dumping Treasuries in favour of riskier assets, thereby lifting the yield on T-Bills, the Dollar has kept its strength despite a weak economic position.
From a technical perspective, the EURUSD is trading mainly in reaction to rising US Dollar demand. The daily trend is accelerating to the downside as the first test of the 1.21515 level has been made today. Should the EURUSD manage to hold above that level, we may witness a return of bullish interest to lift the pair back towards the 1.22 handle.
On the flipside, should sellers continue to drive the EURUSD lower beyond the 0.236 Fibonacci retracement level, the next area of support should be felt around the 1.20 psychologically significant level.
(Chart Source: Tradingview 11.01.2021)
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