EUR/USD, USD/JPY Tied to Crude Oil Futures and US Yields

The current market landscape has EUR/USD and USD/JPY traders experiencing an identity crisis. The two pairs have become incredibly linked to crude oil futures, US yields, and broader FX movements.

A recent analysis by LSEG reveals a strengthening relationship between Brent oil prices and the US yield curve, particularly in the belly and long end of the curve. This means that movements in Treasuries are significantly influencing currency pairs, including EUR/USD and USD/JPY.

The EUR/USD pair has demonstrated an almost lockstep inverse relationship with shifts in US yields, with the most enduring link at the front end of the curve. Meanwhile, USD/JPY traders face conflicting forces between higher energy and Treasury yields, as well as the threat of intervention from Japanese authorities or the US Treasury.

The technical picture for EUR/USD still favors selling strength and downside breaks, but the lack of a clear escalation in the Middle East makes it uncertain whether the pair will break through its current support zone. In contrast, USD/JPY traders are closely watching the 158.00-158.50 intervention danger zone.