EUR/USD: Vol, Funda & Short-Dated Yield Spread May Weigh

The exchange rate should find it difficult to build upon further gains as neither fundamentals nor correlations argue for a breakout of 1.1615-20 as things stand. The reduction in Italian yields, coupled with an increase in the 10-yr German vs US yield spread has bolstered the rate, but a depressed 2-yr yield spread, decreasing volumes on the way up and a short-term steepening of the US yield curve are all signs that downward pressure is a scenario to consider, especially on the back of Friday's US wage growth numbers.

The German ZEW economic sentiment is the only risk event of note, with the rest of the calendar quiet until super Thursday, when we get US CPI and the ECB policy decision.