EUR/USD consolidates at 1.1400 amid US holiday and aggressive Fed bets

• EUR/USD is consolidating at the 1.1400 area with US markets closed for Martin Luther King Jr Day.
• The Fed’s aggressive bets have seen implied yields rise on US bond futures, which could offer dollar support.

Forex market volumes are thinner than usual this Monday, with US markets closed for Martin Luthar King Jr. Day, leading to more tentative/softer trading conditions across asset classes. The EUR/USD, therefore, remains sideways on the day in the 1.1400 area as it consolidates above support in the 1.1380 area in the form of December/late November highs and below near 1.1500 highs from In the past week. Although the Fed went into blackout ahead of next week’s January 25-26 meeting, the debate over the Fed’s policy outlook in 2022 and beyond remains the hottest topic in the market right now. With expectations of multiple rate hikes by 2022 almost unanimous among analysts, the main debate now is how this will affect the economy and asset classes.

US bond markets are closed, but the 10-year US Treasury yield hit a high of 1.86% in early trading, while last Friday’s data from the CFTC showed that Speculators’ net short bets on 10-year US Treasury yields had peaked, at their highest level since February 2020. As the US resumes its rally this week, this could provide some much-needed support for the US dollar, which was hit last week by an easing of long bets. ING FX strategists “remain of the view that we have yet to see the dollar peak, and that the balance of risks to EUR/USD is still skewed to the downside, primarily due to the monetary policy divergence between the ECB and the Fed.”

Technical levels