EUR/USD: Euro sell-off accelerates as US bond yields spike

The EUR/USD is falling for the sixth consecutive day as investors react to the rising US bond yields after the Senate passed the much-awaited stimulus package. It is trading at 1.1877, which is 3.80% below the highest point this year.

US stimulus leads to bond sell-off

Last week, the House of Representatives passed the $1.9 trillion stimulus package that Joe Biden proposed. The bill then moved to the Senate, where Democrats passed it during the weekend.

In total, the package includes funds for stimulus checks, some infrastructure projects, vaccine distribution, and state and local governments bailouts. This bill means that the US has provided almost $6 trillion in monetary stimulus to the economy. Indirectly, the Federal Reserve has also provided stimulus worth more than $3 trillion.

Therefore, the EUR/USD pair declined today because of the strong US dollar as bond yields rose. They are rising mostly because investors believe that the US economy will overheat, which will lead to intervention by the Federal Reserve. Furthermore, on Friday, data showed that the American economy added more jobs than expected.

The US dollar index rose by 0.25% as the currency rose against most peers, including the Japanese yen and Swiss franc. 

Looking ahead, the EUR/USD will react to the European Central Bank (ECB) interest rate decision that will come out on Thursday this week. In it, economists expect the bank will leave interest rates unchanged and commit to supporting the economy until unemployment falls and inflation rises.

Tomorrow, the EUR/USD price will likely react mildly to the final reading of the Eurozone’s fourth-quarter GDP data. Economists expect the data to show that the economy grew by 0.6% in the quarter leading to an annualised decline of 5.0%. Other key numbers that will move the pair are the US inflation numbers and the US federal budget.

EUR/USD forecast

The four-hour chart shows that the EUR/USD has been in a strong downward momentum in the past few days. It has already moved below the important support at 1.1950 and 1.2000. Also, the price is slightly below the 25-period and 50-period exponential moving averages (EMA) while the Average Directional Movement Index (ADX) has continued to rise. As you will find in our free forex course, a rising ADX is a sign of strength for a rally. Therefore, the pair will likely continue falling as bears target the next key support at 1.1800.