The most dominant theme in the market right now continues to be the reflation theme okaying out in US markets. Cyclical assets are outperforming safe/stable assets, and we see this across asset classes. The best case in point is in the US Treasury market, with US long-term bond yield selling off considerably. These moves are largely due to the US economy’s cyclical outperformance, a move which is expressing itself in EURUSD. EURUSD is exposed to this narrative as Europe is struggling to grow out of the COVID-19 crisis. Hence, the relative attractiveness of US assets weighing down EURUSD. We show this here:

From a trading perspective, our risk range is pointing to an attractive entry point on EURUSD given the recent bounce:

After periods when a currency pair hits/exceeds our upside or downside ranges, we typically see a correction. While we don’t think trading just for that move is the best idea, the current environment seems to favor a weaker EURUSD.