EUR/USD inter-markets: refocused on the downside

EUR/USD has rapidly broke below the psychological support at 1.1200 the figure today, as sentiment among traders has deteriorated in light of another significant drop of Deutsche Bank, this time more than 9% to record lows around 9.90, although it has managed to trim part of those losses soon afterwards.

In the meantime, yields in US and German money markets are reversing the initial drop to daily lows, while the US Dollar Index keeps its march north and is currently testing session peaks near 95.80.

Fed Funds future prices are flirting with daily peaks, while according to CME Group’s FedWatch tool, the probability of a rate hike by the Fed at the December meeting remains above 48% and just over 8% for the month of November, despite Yellen and Harker have emphasized that the November meeting will be ‘live’.

Looking ahead, EUR/USD remains locked within the recent range, while the resistance line off YTD tops seen in early May capping the upside and the 2014-2016 support line acting as the next relevant support in case the 200-day sma at 1.1160 is cleared.

In the near term, USD dynamics remain the exclusive driver for the pair’s price action, with Non-farm Payrolls taking centre stage next week. On the EUR side, final PMIs for the month of September are unlikely to have any impact on markets, while headlines from the Deutsche Bank and the Italian Monte Dei Paschi Di Siena carry the potential to bring in dark clouds to the region… and to EUR.