Our Correlation Monitor Suggests Downside Risks To EUR/USD Are Building

Rates have been driving EUR/USD higher over the past few months, especially (falling) US real yields and (rising) 5y rate spreads. However, US real yields have started to rise, and our correlation monitor suggests EUR/USD should be trading lower based on that (Table, Charts). Meanwhile, 5y rate spreads appear to be toppy, so we’ll need another jump higher in euro yields for EUR/USD to have a chance of another move higher in the near-term. We get CPI (final print) tomorrow and PMIs on Friday, so those will be key events to watch.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Photo Credit: depositphotos.com

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