EUR/USD: all eyes are set on 10-year Treasury Bills

The euro managed to hold on to its monthly highs against a dollar that is subject to opposing forces especially since the confusing release of the latest monthly usage report for April. Fears of a resurgence of inflationary pressures are weighing on risk appetite in the equity markets, sucking up commodity prices but momentarily neutralising the Euro/Dollar currency pair.

As a reminder, Friday's Non Farm Payroll (NFP) report on US employment will have confounded the trading rooms who were expecting close to one million new private sector jobs. The reading of the report is dual. On the one hand, it is disappointing, but it shows that the US economy, seen through the prism of usage in any case, is not overheating, which is consistent with maintaining accommodative credit conditions for a long time. Unless this is a sign of a glaring labour shortage...

For CM-CIC Market Solutions, "supply is struggling to adjust when demand is soaring under the impetus of a lifting of health constraints", hence the "cold shower" effect. The next step, if this situation persists, is naturally an upward pressure on wages, which will mechanically lead to a pressure on prices. The fear of this spiral is at the heart of the concerns in the trading rooms.

As a reminder, last week, Mrs. Yellen, now Secretary of the Treasury, estimated, during the preparation of an online event, that a slight rise in federal rates could be "necessary", in order to avoid an "overheating" of an economy in full recovery...

The US inflation figures (tomorrow 14:30 European time) will shed further light on this, and fuel speculation on the timing of the Fed's monetary normalisation. This is clearly the statistical highlight of the week. The combination of these two fundamental elements (usage and consumer prices) will weigh heavily in the balance for the next meeting of the Fed's monetary policy committee next month.

In terms of yesterday's stats, note the publication of the Sentix index of investor confidence in the Eurozone, at 20.9 points, the highest in 3 years. In the meantime, traders have just taken note of the German ZEW index of confidence in the first economy of the Eurozone, up sharply to 84.5 at the highest in 2 decades.

"The slowdown in the third virus wave has made financial market experts even more optimistic. The ZEW economic sentiment indicator in the May survey reached its highest level in over 2 decades. The assessment of the economic situation has also improved significantly. Experts expect a significant economic recovery in the next few months. The economic outlook for the eurozone and the US has also improved considerably," commented ZEW President Professor Achim Wambach on current expectations.

The yield on US government bonds (10-year Treasuries) was up a few points to 1.619%.

Right now, the EUR/USD is trading at $1.2131.

MEDIUM TERM FORECAST
Based on the key chart factors we have mentioned, our medium-term view on the Euro Dollar (EURUSD) is neutral.

We will maintain this neutral view as long as the EURUSD is positioned between support at $1.2100 and resistance at $1.2210.