EURUSD: Best Risk Reward At The Edges Of The Perpetual Range

I’ve been endorsing to play EUR from the long-side against the US Dollar on the basis that the spread between the German and the US bond yields is screaming the pricing of the pair remains at a significant discount. However, I still find it hard to believe we can break much higher beyond 1.15 knowing that the German yield curve is also hinting the ECB is facing a tough challenge in 2019 in order to exit its stimulus program and revert back to normalization. The magenta line (German yield curve) keeps the upside limited, while the blue line (German vs US yield spread) provide the downside cap.

The end result appears to be, more stagnant and low vol conditions between 1.13–1.15. Note, the rejection away from 1.15 round number on Jan 2nd should speak volumes of the conviction that still exist to be a seller on strength, while Jan 3rd bullish rejection cements my range-type view. Be aware, that with implied volatility running above historical by a small margin, it does suggest that a small risk for the range to be broken exist, mainly due to the current risk-off environment. Bottom line, keep playing the range at the extremes for the best possible risk-reward opportunities.