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Euro Supported By Recent Surge In Front End

  • Moves on the front end of the Euro curve have been very aggressive this week (especially in the past two days) as reflation trades continue.
  • Euro 2Y swap rate surged to 15bps today, its highest level since August 2015, up from -50bps in early September and up from -20bps last week.
  • The significant rise in the 2Y swap rate has been driving the Euro higher against the greenback.
  • The chart below shows the relationship between the EURUSD exchange rate and the 2Y swap rate differential in recent months.
  • EURUSD broke above its 100DMA today and nearly tested its 1.1493 resistance, which corresponds to the 50% retracement of the 1.0640 – 1.2350 range; a break above that level would open the for a move up to 1.16 (Sep 21 highs).
  • The strong NFP print today coming in at 467K, nearly four times more than the 125K expected, led to a positive bounce on the greenback.
  • However, further consolidation on the front end of the Euro curve could continue to support EURUSD in the near term.

Source: Bloomberg/MNI

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