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Euro Rebounds on Yield Differential Move

David Becker
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www.iforex.com
Euro Rebounds on Yield Differential Move

The EURUSD currency pair pushed higher in early trading as the yield differential narrowed allowing the European currency to gain over the greenback. The yield on the T-note over Bund spread, declined to 131 basis points, down from 138 basis point highs of last week. Contagion from the missed debt repayment by a company linked to Portugal’s Banco Espirito Santo has also proved limited.

Eurozone industrial production declined 1.1% month over month in May, in line with expectations. April was revised slightly down to 0.7% month over month from 0.8% month over month and the correction in May meant the annual rate decelerated to 0.5% year over year from 1.4% year over year in the previous month. The correction ties in with easing confidence numbers and means a slight slowdown in activity even if the overall recovery remains intact, amid a broadening of activity. Still, the drop is also a reminder that the balance of risks remains tilted to the downside.

The ECB’s Weidmann said that Eurozone interest rates are too low for Germany. The situations in the Mideast and Ukraine remain a cancer, with, in the case of the latter, the Russian foreign ministry saying that the shelling from Ukraine may have “irreversible” consequences.

Today’s snapback in the currency pair followed a doji day on Friday, which reflects indecision. The currency pair rebounded above the 10-day moving average but has since moved lower hovering near 1.3630. Momentum has slowed and the MACD (moving average convergence divergence) index is printing near the zero index level with no specific trajectory. The RSI (relative strength index) has recovered and is pointing upward while printing near 50, which is smack in the middle of the neutral range and reflects consolidation.

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