EUR/USD inter-markets: still a sell on rallies

Today’s pause in the USD-rally has allowed EUR/USD not only to rebound from yesterday’s fresh 2016 lows near 1.0660, but also to regain the 1.0700 handle and adventure a test of 1.0750, closer to Wednesday’s bullish attempt.

However, the ongoing correction lower in the greenback should be seen as temporary only, as the buck remains well underpinned by rising expectations of a rate hike by the Fed next month and prospects of higher inflation expectations in the US economy. Currently, CME Group’s FedWatch tool is signalling a probability of higher rates by year-end at more than 90%.

The radio-silence from the ECB leaves the bulk of the pair’s price action to the USD-dynamics, as this has been the case for the last months. The ECB meeting in December, however, should start gathering relevance in light of the publication of revised forecasts and, more important, any update on the extent of the QE programme (currently it is set to run until March 2017).

That said, the current strength in EUR/USD should find a tough initial barrier in the mid-1.0800s, where coincides Monday’s top and October lows, while a transitory hurdle aligns as well in the 1.0920 area, where sits the 20-day sma.

To learn more about this topic, check our video analysis: