EUR/USD inter-markets: door open for a test of 1.1040

EUR/USD is losing ground for the second consecutive session so far this week, coming down to test levels below the critical 200-day sma although finding some decent support in the mid-1.1100s for the time being.

The onging rally in the greenback remains the exclusive catalyst behind the pair’s weekly decline, helped at the same time by rising yields in US money markets while widening the spread differential vs. their German peers. The US Dollar Index (DXY) keeps the upside intact, managing to regain the critical 96.00 handle well underpinned by renewed sentiment following recent upbeat results in the US calendar.

Volatility tracked by VIX remains in the lower end of the range, while Fed Funds futures prices are challenging recent highs and are signalling a probability of a rate hike by the Federal Reserve at levels close to 56%, according to CME Group’s FedWatch tool.

All in all, the current scenario keeps favouring the greenback ahead of the critical Non-farm Payrolls figures for the month of September due on Friday. Regarding spot, the next support emerges around the 1.1100 area, where sit the 2014-2016 support line and a retracement of the June-August up move. If cleared, July’s lows in the mid-1.0900s is up next.