EUR/USD launches high as US treasury yields rally accelerates

Written by: Crispus Nyaga
February 25, 2021
  • The EUR/USD price rallied today after the US treasury yields soared.
  • The ten-year rose to the highest level since February last year.
  • The strong EU business and consumer sentiment also contributed.

The EUR/USD made a bullish breakout as US treasury yields continued rising and after the relatively strong EU confidence data. The pair rose to a high of 1.2230, which was its highest level since January 8.

EUR/USD chart

Rising US yields

The US dollar index dropped by more than 0.40% as the US Treasury yields continued to rise. The yield of the ten-year rose to 1.40%, the highest it has been since February 2020. This is a substantial increase from last year’s low of 0.50%. Similarly, the five-year rose to 0.50%, its highest level since March last year as shown below.

US 5-year and 10-year yields

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The yields are rising ahead of a Congressional vote on Joe Biden’s $1.9 trillion stimulus package tomorrow. This package will allocate funds to individuals, select companies, and states and local governments. 

Economists at leading banks and forex brokers believe that the new stimulus will lead to a higher inflation. Indeed, this trend has already started. In the most recent release, the statistics bureau said that the headline CPI rose to 1.4% in January. As such, there is a possibility that the stimulus will supercharge it to 2.0% and above.

The EUR/USD is also rising after the strong consumer and business confidence data from the European Union. According to the European Commission, consumer confidence increased from -15.5 in January to -14.8 in February, in line with expectations. In the same period, the business and consumer survey increased from 91.5 to 93.4.

Meanwhile, the services sentiment increased slightly from -17.7 to -17.1 while that of the industrial sector rose from -6.1 to -.3.3. This improvement was mostly because of the ongoing vaccination drive and the reopening of many economies.

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EUR/USD technical forecast

EUR/USD technical chart

The four-hour chart shows that the EUR/USD has been struggling to move above 1.2182 in the past few weeks. The pair made this bullish break-out today, rising to the highest level since January 8.

The price also managed to move above the first support of the Andrews Pitchfork and the 15-period and 25-period weighted moving averages (WMA).

Therefore, after breaking out, the pair will likely continue soaring as bulls target the next resistance level at 1.2300. To do this, bulls will need to first move above 1.2250.