Euro breaks by means of 1.11 because the US greenback continues to slip. What’s subsequent

The euro has handed the 1.1000 take a look at. It has been flirting with that degree all through December however stalled out close to 1.1017 a number of instances earlier than lastly edging above this week.

Given the time of yr, it is powerful to declare a breakout however immediately’s worth motion is hard to argue towards. The US greenback is broadly weaker, Treasury yields are decrease and the euro has jumped one other 60 pips to interrupt 1.1100 for the primary time since late July.

What’s worrisome for the bulls is that the market is absolutely pricing in a Fed reduce in March with solely a 72% likelihood of an ECB reduce the identical month. For your complete yr, ECB pricing is for 162 bps and the Fed at 157 bps, although the ECB pricing is extra back-loaded.

I are likely to suppose the ECB in the end cuts greater than the Fed as a result of the financial system is weaker in order that needs to be a drag on the euro. On the similar time, USD positioning is crowded, eurozone valuations are low-cost and the euro has been perpetually discounted so one thing like 1.20 may be doable on imply revision alone, significantly if there may be one other gentle winter.

For now, I do not see any purpose to struggle the development greater in EUR/USD till it nears the July excessive of 1.1275.