EUR/USD inter-markets: attention to 1.0820

The lack of upside traction in EUR/USD has sparked the idea of some consolidation at current levels ahead of a potential leg lower, initially targeting the 1.0900 region (post-Brexit lows) and then the 1.0820 area (March lows). The inability to break above the base of the 6-month rising channel (today around 1.1180) adds to this view.

Today’s strong results from US Non-farm Payrolls for the month of June (287K) has practically ruled out the likeliness of a (pre-emptive?) rate cut by the Federal Reserve at some point in the coming months, while leaving practically unchanged the probability of the next rate hike at the December meeting around 20%, according to CME Group’s FedWtach tool.

Today’s results have added further attractiveness to the dollar, which could resume its bullish momentum in the near term against the backdrop of global adjustments to the recent developments in the UK. The next critical target for the US Dollar Index is located in recent highs in the upper-96.00s, levels last traded in mid-March.

Further EUR-downside could also be expected following German money markets, with yields of the 5-year and 10-year benchmarks hovering over recent lows, in contrast with their US peers, all in a context biased towards the risk appetite – as shown by depressed levels of volatility tracked by the VIX.

All in all, further downside appears likely in the near term, now not just coming from the UK front and its uncertainties, but also from the likelihood of a shift in the Fed’s views of its rate path.