There are not many trending moves across major currencies right now (the Canadian dollar seems to be the only decisive mover). However, there are signs across economic and market indicators that suggest a strengthening of the euro (EUR) could continue.  

  • The European COVID vaccination program is accelerating, catching up fast with the US and UK.

  • As US economic data starts to disappoint, the Eurozone’s recovery is just getting going.

  • Eurozone bond yields are rising strongly now as US yields struggle in a range.

  • In forex, EUR crosses look set to continue to benefit, with EUR/USD looking higher and EUR/JPY also strong.  

European COVID vaccinations ramping up

The vaccination programme across the EU took a while to get going. Beset by political caution and supply issues, the Eurozone roll-out significantly lagged that of the US and UK. However, it is now catching up fast. 

The EU has now administered at least one vaccine shot to 31% of its total population. A  month ago, this was just 18%, but the curve is certainly accelerating fast. This will allow the re-opening of these economies to happen faster.  



US data begins to disappoint

This much better look for the European vaccine numbers is coming as US economic data is increasingly surprising to the downside. Friday’s industrial production, retail sales and Michigan Sentiment missing expectations may now lead to a moderation of expectations for US data. 

Eurozone data has yet to feel the impact of a Q2 recovery. We will be keeping an interested eye on Friday’s flash PMIs. Upside surprises for the Eurozone data, especially versus the expectation of declining US PMIs (from admittedly strong levels of growth above 60) will play into this narrative of the US passing its peak, whilst the Eurozone is still on the way up. 

Eurozone bond yields are rising fast

The bond markets are taking note. Yields on Eurozone bonds are rising fast now. This is a sign of growing confidence in the recovery in addition to growing inflationary expectations too. Furthermore, the spreads between the core (German) and periphery (Italian and Spanish) bond yields are also widening. This reflects the growing confidence at a time of recovery.


Eurozone bond yields

If this continues it will put pressure on the ECB to move away from its ultra-dovish stance which drove it to front-load its PEPP bond purchases this quarter. It may be too early for June, but we will be looking for at least a discussion around tapering to feature for the ECB soon.

In 2021, there has been a notable positive correlation between EUR/USD and the spread between the German 10 year Bund yield and US 10 year Treasury yield. Yield differentials are a classic driver of forex pairs and it seems to be the case once more for EUR and USD. Treasury yields are struggling sideways right now, so if Bund yields continue to rise it will drive EUR/USD higher.


Also, note the tight positive correlation between EUR/JPY and the spread of the Bund versus the Japanese Government Bond yield. This bodes well for EUR/JPY moving higher.


EUR/USD to rise above 1.2180/1.2240 resistance

This all adds up to a strengthening EUR. It is interesting this morning to see EUR/USD moving into the resistance band 1.2180/1.2240. Although there will likely be bumps along the road, we expect the pair to move through this resistance and towards the 1.2350 January high in due course. The key higher low support is now at 1.2050.


Also if EUR/JPY can get through resistance from 2018 at 133.00/133.50 then there is little real resistance until 137.50.