EURUSD has not only returned to the 1.10 area this morning, but is now approaching the local peak from Monday/Tuesday. The divergence between EURUSD and yields closed yesterday. Bond prices (TNOTE) were boosted by uncertainty over the banking sector, which of course pushed yields lower. Demand for the bond meant demand for the dollar, so it was easier to close the divergence. When divergence is closed, usually the key instrument (in this case the EURUSD, which is dependent on TNOTE) reverts to the main trend.
Today, this is also the result of large options expiring on EURUSD. Most of them expire at 1.09-1.10, but sizable holdings are also in the 1.1030-1.1045 range.
Of course, the dollar could still be turbulent ahead of the Fed decision a week from Wednesday, but at the same time, the turmoil around the banks could cement the Fed's softer stance. In view of this, we should not be surprised if there is a smaller or larger hint of an end to hikes, which could lead to the start of an even stronger upward wave. At this point, the Fed seems unlikely to have any basis for making it clear that interest rates will need to be raised for much longer.
Source: xStation5
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