EUR/USD inter-markets: fade the rally?

EUR/USD has regained the 1.1300 neighbourhood following a renewed and so far persistent selling bias around the greenback, reinforced at the same time by the neutral message from the ECB meeting on Thursday. Recall that the ECB Council has downplayed the likeliness of further easing measures in the region, at least for the time being, while it stressed that the current QE programme will run until March 2017.

Spot has quickly surpassed the 1.1300 barrier in the wake of the event, although the move eventually proved to be ephemeral.

In the meantime, USD dynamics remain the exclusive driver for the pair’s price action, barring any surprise from the ECB, a rather unlikely scenario given the recent ECB message.

Yields in the German money markets remain supportive of the single currency today, narrowing the spread vs. their US peers and lending extra support to the upside momentum in spot. Fed Fund futures prices have bounced off recent lows, reflecting diminishing expectations of some kind of Fed action later in the month – the rate-hike kind of action.

In the same direction, volatility tracked by VIX has been ticking higher in recent sessions.

Regarding FX, EUR/USD has briefly tested the key resistance line off 2016 highs above 1.1300 the figure on Thursday, just to deflate to the 1.1270 area soon afterwards, albeit keeping the bullish bias intact. That said, the resistance line today at 1.1311 remains the initial hurdle, previous to 1.1329 (spike post-ECB) and then 1.1367 (August’s peak).