EUR/USD: Not a Clear Cut Proxy for Risk, Improving Value

The resilience exhibited by the EUR should continue judging by the renewed demand in Italian bonds, leading to a reduction of the Italian vs German yield premium, or the spikes higher in both the short and long-dated German vs US yield spreads, which as one can notice via the red an blue overlayed lines, found new bullish legs in what remains a constructive structure that should anchor the Euro on retracements.

The only element of risk for the Euro on Thursday is the further deterioration in risk flows, which may cause risk-off flows to find shelter in the allure of the USD, hence applying downward pressure to the exchange rate, but again, expected to be well supported at key levels of support (purple rectangles), especially after the new bullish leg found. It will take a considerable deterioration in the value of the most correlated assets, combined with further pressure via risk-off flows to damage the constructive technical picture in the pair in the 30m TF.