EUR/USD may have a tough time extending its two-week winning streak, as the Eurozone inflation expectations have diverged lower from the US inflation expectations.
While the US 5y5y forward inflation swaps have added more than 16 basis points since late September, their Eurozone counterparts have remained sidelined, as noted by Robin Brooks, Chief Economist at the Institute of International Finance (IIF) and former Chief FX Strategist.
In other words, swap traders are betting on the US leading the economic recovery from the coronavirus-induced recession.
Further, the US treasury yield curve has steepened in a dollar-positive manner to the levels last seen in November 2016, and the number of coronavirus cases across the Eurozone is rising.
As such, EUR/USD’s recovery rally from the Sept. 25 low of 1.1612 may stall. At press time, the pair is trading near 1.1818; down nearly 200 pips from the high of 1.2011 reached on Sept. 1.
The pair jumped 0.98% last week and 0.74% in the preceding week as the safe-haven dollar took a beating across the board amid the risk-on action in the global equities. The pair gapped lower at 1.1809 early Monday on coronavirus concerns.
The data calendar is light on Monday, with just the German Wholesale Price Index for September due for release. Meanwhile, the pair could take cues from the European Central Bank President Christine Lagarde’s speech, due at 11:00 GMT.
Lagarde is expected to deliver reiterate willingness to provide additional stimulus and add to bearish pressures around the common currency.