EUR/USD erases early losses as US yield rally stalls

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  • EUR/USD trades flat after hitting lows below 1.12140 in Asia. 
  • The US yield pulled back from 12-month high, weakening demand for the greenback. 
  • Copper-gold ratio suggests scope for an extended rally in bond yields. 

After falling to 1.2137 in Asia, EUR/USD has now regained poise to trade largely unchanged on the day near 1.2160. 

The bounce could be attributed to the 10-year US Treasury yield’s pullback to 1.50% from the 12-month high of 1.55% reached Thursday. 

The relief, however, could be short-lived, as the copper-gold ratio, an indicator of global growth, suggests the yield has plenty of room to rise, as noted by Jeroen Blokland, Portfolio Manager for the Robeco Multi-Asset funds. 

The uptrend in yields will likely gather pace, bringing more pain for stocks and EUR/USD if the US core personal consumption expenditures price index (PCE) scheduled for release at 13:30 GMT beats estimates. Federal Reserve’s preferred measure of inflation is expected to have risen by 0.2% month-on-month in January, following December’s 0.3% increase. 

However, the dollar may have a tough time holding on to gains for the long haul if the short-duration bond yields remain relatively low, according to Goldman Sachs. While the 10-year Treasury yield has risen by nearly 50% this year, the two-year yield, which is more sensitive to short-term interest rate/inflation expectations, has added just four basis points. 

The investment banking giant expects coronavirus vaccinations and rapid global growth to keep the greenback under pressure. 

EUR/USD faced rejection at 1.2243 on Thursday and ended the day with a Gravestone Doji candle on the daily chart, warning an impending sell-off. The dollar found haven bids as the steep rise in the US Treasury yields weighed over stock markets. 

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