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Spreads and Sentiment
Putting aside hard and soft data, yield differentials continue to command FX markets as the German-US 10 year yield spread breaks above its 200-day MA for the 1st time since August to hit -1.90%. The story, however, is not only in the break of the average, but also in the fact that the formation of the spread consists of higher lows and higher highs since the December bottom, which is the same formation for EURUSD, gold and most "anti-USD" instruments.
The next key technical barrier for the spread stands at -1.70%, which marks the trendline resistance from the January 2015 highs. Much technical work remains to be done for euro bulls to secure lasting stability.
But with speculative euro futures positioning entering positive territory for the 1st time since 2014 and with these contracts, "sentiment" should further pick up for the currency due to the fact that the 22,399 representing net long contracts, is well below the 121,000 record high from 2007, which argues against the popular & often erroneous notion of improved euro sentiment being excessive.