EUR/USD inter-markets: ‘dead-cat’ bounce on sight?

EUR/USD is trading on a firmer note at the beginning of the week, managing to stage a rebound from last week’s fresh 2016 lows in the proximity of 1.0560. The up move has found echo on the renewed selling bias around the buck, as market participants seem to have entered some profit-taking mode after the US Dollar Index clinched highs near 101.50 on Friday, levels last seen in March 2003.

The current bullish attempt seems to have run out of legs in the mid-1.0600s for the time being, while the broader bearish view on spot stays unchanged. In fact, bets on the Fed tightening its monetary policy in December plus perspective of higher inflation expectations under a Trump presidency remain USD-supportive. CME Group’s FedWatch tool now sees the probability of a rate hike next month at above 95%, while speculative positioning in EUR hints at further downside on the cards for the single currency.

US yields are trading on a mixed fashion so far today, although the broader scenario keeps pointing to further advances, fuelling extra gains for USD.

Adding to the EUR complex, uncertainty regarding the outcome of the Italian referendum on December 4 could start to weigh on investors’ sentiment as it is not priced in by markets, opening at the same time another bearish front in case of a ‘NO’ win.

Regarding FX, the initial up barrier aligns at today’s tops at 1.0650, coincident with Friday’s bull run. If surpassed, the next relevant resistance area remains in the 1.0820/50 band, where sit October/March lows. On the downside, a break below Friday’s 2016 lows near 1.0560 would open the door to the significant support band at 1.0540/20, December/April 2015 lows.

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