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Euro Fights Back Against a Tumultuous US Dollar Caught Between Risk and a Hawkish Fed

Euro Fights Back Against a Tumultuous US Dollar Caught Between Risk and a Hawkish Fed

Daniel McCarthy, Strategist

Euro, EUR/USD, US Dollar, Fed, USD/JPY, China, Crude Oil - Talking Points

  • Euro support came back after the US Dollar slid lower
  • Several Fed speakers got the message back out there about higher rates
  • The US dollar could be at a crossroads. Where will it take EUR/USD?

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The Euro has retraced some of yesterday’s losses after broad market sentiment picked up after Chinese authorities cracked down on protesters.

EUR/USD made a five-month high just shy of the psychological 1.05 level on Monday before the rout kicked in. So far on Tuesday, the Euro made up some lost ground with the US Dollar sliding lower across the board.

The weaker US Dollar comes despite several Federal reserve speakers reminding markets that tighter monetary policy lies ahead.

Fed board members James Bullard, John Williams and Lael Brainard led the hawkish rhetoric in the North American session before Thomas Barkin picked up the baton after the New York close.

The over-arching message was consistent. Although rate increases have decelerated, rates are going higher and they might stay there for longer than the market currently thinks.

Wall Street took heed with the Dow, S&P 500 and Nasdaq all finishing the cash session down around 1.5%. Futures are pointing to a steady start when they re-open later today.

Chinese and Hong Kong equity indices raced higher after authorities cracked down on protesters that are opposed to ongoing lockdowns there.

Treasury yields have made up a couple of basis points across the curve that was lost on Monday. The US 2s 10s yield curve dipped below -0.80% again overnight.

Elsewhere, Japan’s jobless rate came in slightly worse than anticipated at 2.6% for October rather than the 2.5% forecast. USD/JPY has firmed above 138.50 after visiting a 2-month low at 137.50 yesterday.

Crude oil has also found firmer footing ahead of the OPEC+ meeting on Wednesday. There had been some speculation that they might cut production by more than the 2 million barrels per day already announced.

The Brent futures contract is approaching US$ 85 bbl while the WTI contract is near US$ 78.50 bbl at the time of going to print.

The cryptocurrency space continues to face headwinds with BlackFi declaring bankruptcy as the fallout from FTX continues.

Looking ahead to today, after Swiss GDP figures, German CPI will be released before Canadian GDP later on.

The full economic calendar can be viewed here.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD was unable to hold onto a five-month high yesterday and has since fallen back into the recent range of 1.0223 – 1.0482.

Support could be at the recent low of 1.0223 ahead of the breakpoint at 1.0198.

On the topside, resistance might be twin peaks of 1.0482 and 1.0497 or further up at the June high of 1.0615 which is slightly below a breakpoint at 1.0638.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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