Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
EUR-crosses Begin to Lose Traction at Start of Week

EUR-crosses Begin to Lose Traction at Start of Week

Talking Points:

- EURUSD's only bullish appeal rooted in stretched positioning.

- EURGBP, EURJPY technical structures remain fairly weak.

- See the April forex seasonality report.

The Euro has once again started to slip back thanks to its deflating yield appeal and advancement along the path of a funding currency. As the differential between the short-end and the long-end of the yield curve decreases (in Germany the 2s10s spread has fallen to 0.339% at the time of writing from 0.638% on January 1), the Euro continues to lose its appeal from a growth perspective; and its appeal as a funding currency increases as rates towards the long-end drop into negative territory (German yields out to 9-years are negative: German 9-year yield now -0.08%).

Ultimately, the drop in sovereign yields decreases the demand for Euros thanks to the "portfolio rebalancing channel" effect, something ECB President Mario Draghi has been discussing for much of this year (an effect touted by former Fed Chair Ben Bernanke and now by current Fed Chair Janet Yellen). With nominal yields falling and inflation expectations holding stable (and even slightly rising), real returns on fixed income investments are decreasing; in turn, this fuels demand for higher yielding/riskier EUR-denominated assets like equities; or forces Euro-Zone-based investors to look outside the region for opportunity – which means capital needs to be converted from Euros into foreign currencies to fund investments. Sustained capital flows should remain a factor in keeping the Euro pinned lower.

See the above video for technical considerations in EURUSD, GBPUSD, EURGBP, and EURJPY.

Read more: EUR/USD Appeal Due to Covering Potential, Not Yield Prospects

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES