EUR/USD inter-markets: sideline theme unchanged

EUR/USD has managed to revert yesterday’s deep pullback to the vicinity of 1.1130, rebounding to the area of 1.1240 following rumours that the ECB could taper its QE programme (?). The up move, however, run out of steam in the boundaries of 1.1240, deflating to the 1.1200 neighbourhood during the European morning and thus leaving spot unchanged within the recent broad range.

Yields in the German money markets are currently outperforming their US peers, shrinking the spread differentials and somewhat lending support to the current upbeat sentiment around EUR.

In the meantime, volatility tracked by VIX remains in subdued levels while Fed Fund futures prices are easing from recent highs. In view of CME Group’s FedWatch tool, the probability of a rate hike by the Federal Reserve in December has climbed above 55%, and it was the main driver behind the recent USD rally at the beginning of the week.

Regarding FX, initial hurdle is located at the resistance line off 2016 top at 1.1268. Once cleared, highs in the 1.1280 region emerge as the next resistance levels ahead of the mid-1.1300s. On the downside, the 200-day sma at 1.1165 remains the initial support, followed by yesterday’s low in the 1.1130 zone and ahead of August’s low at 1.1043.