EUR/USD - What’s behind the sharp rebound from 1.05?

EUR/USD staged a strong recovery on Wednesday from the low of 1.0494 to 1.0557 and currently trades around 1.0550 levels.

Franco-German yield spread narrowed

The 10-year Franco-German yield spread narrowed from 0.814 to 0.743 on Wednesday after Francois Bayou pulled out of the French Presidential race, boosting Macro’s probability of beating anti-Euro Marine Le Pen.

March Fed rate hike is off the table

Another factor that is keeping the bears on the sidelines is the reduced probability of a Fed rate hike in March. The CME fed funds data shows only a 22 % probability of a rate hike in March. Fed minutes released overnight carried the usual ambiguous language.

Both factors ensure the spot stays above 1.0527, which is the 61.8% Fibonacci retracement of 1.0341-1.0829.

Politics could continue to overshadow economics. Thus, Franco-German yield spread remains in the driver’s seat. In the US session, the weekly jobless claims report could influence the dollar side of the story.

EUR/USD Technical Levels

A break above 1.0571 (5-DMA) would expose the 50-DMA hurdle of 1.0595, above which the spot could test 1.0677 (Feb 17 high). On the other hand, a breakdown of support at 1.0521 (Feb 15 low) could yield a drop to 1.05 (zero figure) and 1.0480 (Dec 28 high).