Oil Prices Fuel Unprecedented Correlation in FX Markets
The EUR/USD and USD/JPY currency pairs are experiencing an unusual link to energy markets, particularly oil prices. Recent data shows that Brent crude futures have a strong correlation with US Treasury yields, especially in the belly and long end of the curve.
For EUR/USD, this means that movements in US yields have a direct impact on the pair's price. In fact, the relationship between EUR/USD and US two-year yields has been one of the most enduring in recent history.
The technical picture for EUR/USD is still bearish, with a risk of a downside break if support at 1.1325 cracks. However, traders are waiting for a catalyst to force a sustained move lower. Meanwhile, USD/JPY traders are also grappling with the threat of intervention from Japanese and US authorities.