The US interest rate is a crucial driver of financial markets in the current environment. This dynamic is despite the communication out of the ECB. I.e., the chart above shows the US real rate and its correlation coefficient (cc) with the EURUSD. The cc is at -58% and has been robust since the real rate turned positive at the end of April (green dashed line). Therefore, the current upswing in the real yield is a headwind against the euro.
As per yesterday's CPI print, the resiliency of US inflation drove the EURUSD from its upper channel into the central channel, between the blue bands. This move is a relative weakness. Daily momentum will realign to the bearish side if the daily stochastic turns down (blue arrow).
The hourly central pivot overlaps with price support turned resistance (aqua-shaded horizontal). Therefore, short sellers may target this level, given the renewed pressure exerted on the EURUSD.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.