Volatility is certainly on the rise in EUR/USD. This provides both opportunity and risk.
Kit Juckes at SocGen explains what drives the pair and what level should be look at to the upside:
Here is their view, courtesy of eFXnews:
“The correlation between Bund/Treasury spread and EUR/USD is as close as ever, and with US yields drifting back down yesterday and Bund yields staying very close to recent highs, the Euro lost its anchors. No matter that the last weeek has seen encouraging US data, or that the Greek debt talks remain quagmired, Treasuries are doing better than Bunds and the Euro’s doing better than the dollar.
With the breakdown of Euro Area GDP data and US Jolts figures the ‘highlight’ of today’s economic news, the FX market will go on watching bonds. There is no catalyst for EUR/USD to fall back unless amnesia fades and we remember the implications of the US data. That seems unlikely, whereas stronger German labour cost data is yet another sign of stirrings in the heart of the Euro area.
The technical folks tell me that it takes a close above 1.1315 to signal a test of the March 1.1470- high. The Bund/Treasury spread tells me there’s a fair chance of that happening.”
Kit Juckes – SocGen
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