Euro dips below 1.13 as Treasury yields rise

The euro has started the New Year on the left foot, as EUR/USD has fallen close to 1% already this week. The dollar is showing broad strength, boosted by the jump in US bond yields. The 10-year yield broke above 1.60% on Monday, its highest level since November. The yield has crept up to 1.67% on Tuesday. The 30-year yield broke above the 2% level on Monday and is currently trading at 2.05%. If US yields remain at high levels, the dollar could continue its New Year rally.

Treasury bills appear to be the flavor of the week, as investors continue to sell Treasury bills on improved sentiment that the latest wave of Covid cases, driven by the Omicron variant, is less severe than originally feared. In the US, Omicron cases are exploding, with the average number of new cases breaking above 400 thousand, a 200% increase in the past 14 days. However, hospitalisation rates have not jumped higher and Covid-related deaths have actually declined slightly during this period. With no indications that Omicron will have a devastating effect on the global economy, Wall Street remains in an optimistic mood.

The US is back in action with some tier-1 events later today. The ISM Manufacturing PMI and JOLTS Job Openings are expected to show strong readings (60.0 and 11.06 million, respectively), so we could see some stronger movement from EUR/USD in the North American session.

German Retail Sales for November were stronger than expected, but this failed to push the euro higher. Retail Sales rose 0.9% m/m, beating the estimate of -0.5%. On an annualized basis, Retail Sales fell -2.9%, but this was better than the consensus of -4.9%.

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 EUR/USD Technical

• EUR/USD has support at 1.1303. Below, there is support at 1.1232
• There is resistance at 1.1456 and 1.1415

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