EUR/USD inter-markets: dead-cat bounce?

The single currency has so far managed to regain the vicinity of the critical 200-day sma around 1.1100 the figure, coming up from post-Brexit lows around 1.0910 and with the current up move sustained by a softer tone around the US Dollar.

Further upside, however, appears unlikely in light of the increasing uncertainty that is expected to emerge in the UK and the EU, both in the political and economic scenarios.

European money markets are showing yields of the German Bunds trading at levels not so distant from recent lows in contrast with their US peers, all pointing to a wider differential spread and thus removing some tailwinds from EUR. Yields in UK Gilts are showing some sidelining so far despite GBP strength.

Risk trends tracked by VIX remains on the downside, reflecting the positive mood surrounding he risk-associated space, all confirmed by today’s quite a decent rebound in European and UK equities as well as EUR/USD and Cable.

All in all, the rebound appears to obey ‘only’ to USD weakness, which seems it has already assumed the likeliness of a no-hike in the medium term. According to CME Group’s FedWatch tool, the probability of a rate hike by the Federal Reserve in December gyrates around 20%, while market chatter has been already considering June 2017 as a proper candidate for such an announce.  

In the very near term, all eyes remain on the EU Leaders Summit and the possibility of the UK triggering Article 50.