EUR/USD inter-markets: further rangebound likely

The single currency has now reverted the initial negative tone, advancing to the area of session highs near 1.1070 vs. the greenback, although all happening within a narrow range.

It is a quiet Monday, as market participants seem to have already digested the stellar US Non-farm Payrolls for the month of June, coming in at 287K vs. 175K initially forecasted. Volatility tracked by VIX navigates daily lows, reflecting market sentiment favours the risk-on trade for the time being, while the greenback – measured by the US Dollar Index (DXY) - is posting decent gains post-NFP.

The now upside momentum in EUR/USD seems to be further sustained by the good performance of the German money markets, with Bund yields trading in daily highs across the curve. However, the extent of the rebound appears somewhat limited in light of the solid pace of US yields and the already mentioned upbeat stance of the US Dollar Index, reflecting at the same time dwindling expectations of a rate cut by the Federal Reserve at some point before year-end. Markets have almost ruled out a rate hike at least until December, where probability is above 22% according to CME Group’s FedWatch tool.

All in all, further gains in spot appear initially capped around the critical 200-day sma, today at 1.1092, followed by the base of the 6-month rising channel at 1.1190. On the opposite direction, last week’s lows in the 1.10 neighbourhood emerges as the initial support, ahead of post-‘Brexit’ lows near 1.0900 the figure.