EUR/USD inter-markets: rallies only corrective

After climbing to daily highs near 1.0640 in early trade, EUR/USD has returned to the 1.0600 neighbourhood, always against the backdrop of a rising demand for the greenback although recovering some pips from recent 2016 troughs in the 1.0585/80 band.

The outlook on spot stays bearish, as global markets remains heavily biased towards a rate hike by the Fed in December. This view has recently been reinforced by Yellen’s testimony before Congress and several of her colleagues at the FOMC. Additionally, results from the US docket as of late keep pointing to a stronger buck and adding to the prospects of higher rates. CME Group’s FedWatch tool now signals to a probability of a rate hike next month at nearly 91%, based on Fed Funds futures prices.

In the meantime, yields in the German money markets are extending the weekly decline, widening the spread differential vs. its American peers and lending extra legs to the buck.

This week’s comments by ECB President Mario Draghi have been in line with previous statements, removing any room for surprises around EUR and adding to the view of further and deeper pullbacks in EUR/USD.

Technically, spot faces initial support in the 1.0540/20 band, where are located December and April 2015 lows, ahead of 2015 low in the mid-1.0400s. In case of bullish attempts, the strong resistance area around 1.0820/50 – March and October lows - keeps capping the upside in the near to medium term.

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