The recent huge upside momentum in EURUSD has surprised me, the pair is currently sandwiched between a major resistance at 1.1278 (July 2023 High) and support at 1.1140 (December 2023 High).
EURUSD Momentum
Now, if we look at the spread between the 2-year and 10-year yields, we can see that essentially this spread between the 2-year and 10-year yields is trending up, as any objective analyst would expect, but what surprises me is what this spread is based on.
EURUSD 2Year and 10Year Yield Differential
Financial markets currently expect the Fed to cut interest rates by over 60 basis points by this time next year compared to the European Central Bank (ECB). However, comparing the two economies to each other seems odd. In my opinion, the markets are too pessimistic about the Fed and too optimistic about the ECB when it comes to interest rate setting.
But when momentum is this strong, it usually takes a catalyst to reverse course, and with financial markets so focused on labor data, we'll probably have to wait for that until it becomes clearer where inequality is headed next.
