EUR/USD inter-markets: looking for catalysts

The single currency is alternating gains with losses vs. its American peer at the beginning of the week, in a context with extreme thin trading conditions due to the remembrance of the US Independence Day.

The dominating absence of a clear direction is also reflected in the German money markets - with yields of the 5-year and 10-year navigating a narrow range - and the US Dollar Index, which remains near to Friday’s close.

Looking ahead, the FOMC minutes (Wednesday) could be the first test for the pair ahead of Friday’s Non-farm Payrolls, although attention should remain on the developments from the UK and its potential consequences on the euro bloc.

Spread differentials between US and Germany plus the divergence in  monetary policy between the Fed and the ECB remain in the back burner as drivers for the pair’s price action. Recall that market expectations of a rate hike have diminished to practically nil until December, with a probability of just above 22% according to CME Group’s FedWatch tool.

In the meantime, gains in spot appear capped by the base of the rising 6-month channel, today located at 1.1172. If cleared, there is not much in the way of resistance levels until tops above the 1.1400 handle. In case of resuming the downside, post-Brexit lows in the 1.0900 neighbourhood should offer initial buffer.