Currency Analyst since 2010

EUR/USD has good support

Elizaveta Belugina

EUR/USD continues conquering new highs as it is testing levels above 1.1400. A day's close above last week’s high at 1.1390 is needed to open the way for future gains in the euro. Near-term support is at 1.1290.

The pair was driven up by the combination of weak data from the US and growth in German bund yields. Euro has managed to overcome lower-than-expected German GDP growth as the overall euro area’s economic growth accelerated a bit.

The increase of German bund yields is currently a strong driver of the single currency. German 10-year bonds are considered to be a safe haven. This asset has led the selloff at the world’s bond market since the middle of April. As long as investors continue selling bunds and their yield keeps rising, EUR/USD will have strength to go higher.

So, the key question to foresee further development of the situation is why traders sell German bunds. The answer is that bond yields at the beginning of 2015 were very low. On the sings of a pickup in inflation which is eroding bond value market players started to sell them. Even though experts expect demand for German bunds to stabilize eventually, it’s still weak and the bond selloff may continue for a bit longer supporting EUR/USD. It will be important what the ECB President Mario Draghi says today at 15:00 GMT.

At the daily chart we see strong support in the 1.1100/1.1050 area. As long as it holds, upside targets are at 1.1500 and 1.1625.


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