As investors return from the long weekend in the US, yield differentials are likely to dominate FX price action. Recent weakness in EUR/USD is an example of the close ties between price action and German-US 2y yield differentials. Recent narrowing in this yield spread is likely to keep our short-term focus lower. EUR depreciation is likely also driven by the cross rates with EUR/GBP reversing against resistance areas last week and subsequently dropping below range lows in place since July. At this point, bearish EUR signals are building though we are patiently awaiting further signals (such as EUR/GBP heading below 0.8400) before assuming that a stronger top is in place.
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Barclays