Euro rally to be short lived, via Bloomberg
Last Thursday EURUSD rallied higher, but it was mainly a dollar led move. Month end re-balancing led to strong USD selling as investment banks had warned. However, one aspect to note via Bloomberg is the ECB's decision to cut interest rates as little as -1% on TLTRO III loans. This is anticipated to encourage a 'buy everything' sentiment to euro-area bonds which will drive money-market rates and bund yields even lower.
The Bloomberg article pointed out that this was seen from the decision when the yield differentials between 10 year bunds and 10-year US treasuries widened by a steep 10 basis points right away. The spread between the 10 year JGB's and bunds widened in favour of JGB's by a similar number. Taking a look at the chart below you can see that a move in the spread of that margin is rare.
The currency's volatility smile over most time horizons show a preference for deep OTM puts, which tallies with the ECB keen to increase the size of the PEPP program. This all points to EURUSD downside to resume and a test of 1.08 rather than a test of 1.13.
Looking at the EURUSD daily chart there is key resistance over head from the 100 and 200 EMA.
