EUR/USD intermarket: US yields collapse amid supply environment

By FXStreet Based on intermarket analysis, which helps explain why certain moves occur but most importantly, what are the current main drivers for a certain asset class, the vigorous rise in the EUR/USD exchange rate since April 24th, which has grabbed most headlines since the breakout of 1.15, can be mostly attributed to the reduction in bets towards any near term Federal Reserve rate hike.

As shown by the CME Group 30-Day Fed Fund futures prices, used to express the market’s views on the likelihood of changes in U.S. monetary policy, the contract has experienced a collapse, which resulted on the onset of the EUR/USD bull run, after finding a bottom around the 1.12 handle over 2 weeks ago.

Loss of confidence to believe on the Fed

The sharp decline in the Federal Fund rates has led to the 2-year Treasury yields catching a strong offer tone towards its current levels at 0.74% (the move down was initiated on April 26th and has been a one-way street), while the 2-year German yield has been gradually edging higher before topping out on May 3rd, with a subsequent decline to presently trade circa -0.5%.

The observations in the measurable intermarket correlations between EUR/USD and its respective sovereign (Germany …read more

Source:: FX Street