Bund yield drops, sours Euro rally

Last night Euro was sold off sharply after trading as high as 1.139 and by today morning Euro is trading close to 1.12 against dollar.

• Heavy price swings and latest rally in EUR/USD has been closely associated with rise in bond yields across the yield curve. Last night 10 year bund yield spike to 0.75% same time as Euro hit 1.139 against dollar. However sharp buying in bund during New York session led yield lower closing around 0.581%.

• Latest heavy buying could have come from fundamental buyers as well as European Central Bank, for which higher yield posed as an opportunity to implement monetary policy at higher yield.

• Technically speaking, 10 year bund has produced very long legged hammer candle in daily chart which would keep bund bears in check for now. That makes Euro vulnerable to falling bund yields over the coming days. For today price might pull back to the upside after last night's heavy selloff.

For today, Euro traders would focus on payroll report to be released at 12:30 GMT. Euro is currently trading at 1.121 against dollar.