What is driving the move higher in EUR/USD?

EURUSD D1 30-11

A simplistic approach to viewing major currencies is that when markets are risk-off, the main beneficiaries are typically the yen, franc and dollar.

However, in the last few sessions, the euro is also a standout performer with the single currency even outpacing the dollar quite markedly in a bounce from near 1.1200 on Friday to 1.1350 levels at the moment.

So, what exactly is causing the dollar to underperform against the euro?

For one, there has been a large bid in the dollar in the weeks before this omicron saga hit and that comes on the back of stronger dollar technicals and fundamentals to some extent. For me, the latter is where things are playing back for the dollar against the euro.

With the emergence of omicron risks, that has thrown Fed rate hikes pricing into a bit of a chaotic mess and with Treasury yields tumbling heavily across the board as well, that is seeing the supposed policy divergence trade unwind.

From a technical perspective, EUR/USD may be looking towards 1.1400 next but there is some minor resistance around 1.1373-74 just before that.

As much as omicron risks are dominating trading sentiment at the moment, I reckon if the market gets past that, there may be a good setup for shorts in EUR/USD.