EUR/USD and USD/JPY Pairs Caught Up in Oil Price Volatility

The EUR/USD and USD/JPY pairs have been experiencing an identity crisis, with their movements closely tied to those of crude oil futures and US yields. This phenomenon has been particularly evident in recent sessions, where the two currency pairs have been highly correlated with energy market fluctuations.

According to data from LSEG, there is a strong link between Brent crude prices and US yield curve movements, with the belly and long end of the curve showing the most consistent correlation. This relationship has also been observed in sovereign debt markets, where developed-market yields have been influenced by changes in crude oil futures.

For EUR/USD traders, this means that their pair remains closely tied to US yields, with a strong inverse relationship between shifts in US yields and movements in the currency pair. The daily chart shows technicals still matter, with the pair continuing to bounce off support at 1.1363 and 1.1325.

However, the risk of a downside break is elevated due to the run of lower highs and lower lows, as well as the break beneath key medium and long-term moving averages. If the recent downtrend extends with a break beneath 1.1325 that sticks, there's very little technical support until 1.1200.

For USD/JPY traders, the linkages between the pair and movements across the US curve and front-end rate spreads remain strong and sustained. However, the ongoing threat of intervention from Japanese authorities or the US Treasury has created uncertainty and whipsaw movement in the market.