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EUR/USD Struggling to Break Higher as Treasury Yields Underpin the US Dollar

EUR/USD Struggling to Break Higher as Treasury Yields Underpin the US Dollar

Nick Cawley, Senior Strategist

EUR/USD Price, Chart, and Analysis

  • EUR/USD trades on either side of 1.1400.
  • US Treasury yields continue to rise.
  • Retail trader positioning highlights a sharp turnaround.
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The yield on the US Treasury 2-year (1.33%) is back at highs last seen in early 2020 and is countering the recent pick-up in yields seen in the Eurozone. Comments from ECB President Christine Lagarde, and later from ECB ‘sources’, at last week’s central bank meeting that interest rates may rise in 2022, gave the Euro a short-term boost, but this is now fading as UST yields continue to climb. While higher rates are being priced in across the globe as central banks look to tighten monetary policy, bond yields in the Eurozone are now starting to diverge with Italian and Greek yields, in particular, jumping higher. Greek bonds have been supported for years by the ECB’s bond-buying program, and with this now being halted, and with talk of monetary tightening increasing, Greek bond yields could rise to an uncomfortable, and potentially unsustainable, level in the coming months. If this happens, the ECB may need to start thinking about slowing down or paring back any upcoming interest rate hikes.

Looking at the daily chart, there is reasonable short-term resistance overhead at 1.1483 which continues to hold firm. As long as this level holds, then the pattern of lower highs from late May last year remain in place although the chart does suggest a longer-term flattening out with a potential move higher. Below here support is situated between 1.1360 and 1.1380 and these levels may prove difficult to break convincingly.

A look at IG retail trade data below shows traders cutting back sharply on their net-long positions over the week, while net-short positions have been ramped up sharply. The overall conclusion is a mixed trading bias which makes sense in the short term.

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EUR/USD Daily Price Chart February 8, 2022

Retail trader data show 39.41% of traders are net-long with the ratio of traders short to long at 1.54 to 1. The number of traders net-long is 9.83% higher than yesterday and 28.80% lower from last week, while the number of traders net-short is 0.37% lower than yesterday and 58.96% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

EUR/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -15% 13% 1%
Weekly -7% 34% 17%
What does it mean for price action?
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What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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