EURUSD rises for a second consecutive day, supported by lower yields and cooling oil prices EUR/USD continues to rebound after falling to a 17-month low, with yesterday’s stronger-than-expected U.S. PPI inflation data failing to halt the recovery. The pair is up nearly 0.2% today after gaining around 0.6% in the previous session, supported not only by technical factors but also by a third consecutive decline in oil prices and a pullback in U.S. Treasury yields.

• The U.S. debt market showed solid demand for short-term securities yesterday, alongside active Treasury operations at the long end of the curve. The $110 billion 4-week bill auction cleared at a 4.0% yield, while the bid-to-cover ratio rose to 2.56 from 2.40, pointing to stronger absorption of supply despite a slightly higher financing cost.
• At the same time, the Treasury bought back the maximum planned amount of $6 billion of bonds maturing between 2037 and 2046, against $40.836 billion of offers submitted for sale, highlighting substantial supply available for repurchase under the buyback programme.
• Money market fund assets fell by $40.46 billion to $7.92 trillion, which may suggest a partial rotation out of the most defensive cash-like instruments, although a single weekly reading is not enough to confirm a lasting shift in asset allocation.

The data suggest that the market continues to absorb the enormous supply of short-term U.S. government debt without major difficulties, while Treasury buybacks may help improve liquidity in selected older issues at the long end of the curve. Although these operations do not in themselves imply a lasting decline in yields, they appear to be providing some support to the move. The U.S. 10-year Treasury yield currently stands at around 5.1%, compared with more than 5.3% seen recently, meaning the pullback has been relatively substantial and has supported EUR/USD.

EURUSD chart (D1 interval)

Source: xStation5