EUR/USD looks to FOMC, US yields – Danske Bank

The pair remains weak and vigilant on the upcoming release of the FOMC minutes, while higher yields should also collaborate with the downside pressure, according to Jens Sorensen, Chief Analyst at Danske Bank.

Key Quotes

“EUR/USD is under continued downward pressure as the USD weakness trend has been challenged by a continued uptick in US yields: whereas the latter has until recently been driven by rising US inflation expectations, we may be starting to see the first signs of the market pricing the Fed slightly more aggressively; the tone of today’s FOMC minutes could be key in determining whether USD support from this angle could be sustained near term”.

“…we further highlight that tighter USD liquidity is another factor that could weigh a bit on EUR/USD near term, and we reiterate the case for using risk reversals to hedge near-term USD assets/income. We also note though that US Treasury auctions are key to watch at present: if we see low bid-to-cover ratios then it will be a signal of heightened worries over the US fiscal position. This is a possible USD negative looming (again)”.