The Euro remains very range bound. It still by and large tracks the Bund/Treasury spread, albeit trading a little higher than that spread would imply at the moment.
That raises the question of whether it’s getting support from higher oil prices and indeed, whether further gains ahead of (or after) the Doha producers’ meeting could break the current EUR/USD range. The first chart shows oil and EUR/USD over the last decade and glancing at it, you’d think oil was a clear support for the Euro. The second chart is a caveat of sorts, showing a scatter chart of EUR/USD and oil over the last year. There’s a positive correlation, but not one to get too excited about.
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I can get a small improvement in explaining EUR/USD moves by adding oil to the Bund/Treasury correlation, but I need big oil price shifts to make much difference. Oil finding a base, is not the same as oil embarking on a major rally. When I add oil prices, I still don’t manage to ‘explain’ why EUR/USD is as high as it is, as shown in the third chart.
That leaves me reluctant to chase EUR/USD even if oil prices do continue to edge higher. It doesn’t however, change a conclusion that as long as the Fed is super-dovish, and as long as yield spreads are range-bound, there is little chance of EUR/USD falling significantly or, of the dollar generally catching a bid.