EURUSD is undervalued according to EU-US yield curve dynamics, says George Davis, Chief FIC Technical Analyst at RBC Capital Markets.

In Chart 1, Davis compares EURUSD to the difference in EU and US curve spreads, these being: i) EU 2s-5s curve spread – US 2s-5s curve spread; and ii) EU 2s-10s curve spread – US 2s-10s curve spread. He notes how EURUSD usually follows these two differentials but how the relationships have decoupled since April last year, suggesting EURUSD is currently undervalued.

See Chart 1.