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Euro Holds High Ground as US Dollar Subdued on Market Optimism.   Where to for EUR/USD?

Euro Holds High Ground as US Dollar Subdued on Market Optimism. Where to for EUR/USD?

Daniel McCarthy, Strategist

Euro, EUR/USD, US Dollar, Fed, RBNZ, AUD/NZD, USD/JPY, Crude Oil, Gold, - Talking Points

  • Euro finds support with US Dollar undermined in buoyant markets
  • APAC equities moved higher, RBNZ hiked boosting the Kiwi Dollar
  • If Fed speakers stay hawkish, will EUR/USD resume its downtrend?

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The Euro has maintained the gains seen yesterday on the back of the US Dollar sinking as hopes for an end to hyper hikes are heightened. If the rhetoric from the Federal Reserve is to be believed, that might be a bit premature.

Overnight, San Francisco Fed President Mary Daly maintained the hawkish mantra saying that the pain that she is hearing from people is on the inflation side, not on the jobs front.

She highlighted that restrictive policy needs to be maintained for some time once it is in place and described inflation as ‘corrosive’ and ‘toxic’.

Her comments echo similar hawkish words from New York Federal Reserve President John Williams and the rest of the week will see a plethora of Fed speakers crossing the wires.

It seems that the Fed messaging is in stark contrast with what the market would like to happen. It should be noted that Fed Chair Jerome Powell’s address at the Jackson Hole symposium in late August turned the tide on an early exit for their rate path.

In any case, APAC equities have followed on from the strong Wall Street lead and with Hong Kong coming back from a few days off, the Hang Seng index has piled on more than 5% gain as it plays catch up.

Mainland China is still on holiday, but Australia and Japan have also seen decent upside for their stock markets.

The RBNZ hiked rates by 50 basis points as anticipated to 3.50%. The central bank weighed up a 50 or 75 bp lift and the bank said that it is appropriate to keep raising rates at pace. It is their 5th 50 bp in a row.

This stands in contrast to the RBA that raised by 25 bp yesterday instead of the 50 bp forecast. As a result, AUD/NZD is lower again today. USD/JPY dipped below 144 but has since recovered while GBP/USD is sitting above 1.1400.

Elsewhere, Ellon Musk avoided a legal battle by agreeing to buy Twitter at the original price that he bid for the company.

Crude oil has eased around 0.50% from the North American close with the WTI futures contract trading near US$ 86 bbl. Gold has also held onto overnight gains, trading a touch below US$ 1,720 an ounce.

Looking ahead, alongside central speakers today, the US will get jobs and trade figures, while Canada will also get some trade numbers.

The full economic calendar can be viewed here.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD remains in a descending trend channel but it starting to test the upper band of that channel. A close above it and the next simple moving average (SMA) could suggest bearish momentum might be dissipating.

The peak earlier this month at 1.0198 may offer resistance ahead of a cluster of break points and a previous high in the 1.0340 – 1.0370 area. Support could be at the recent low of 0.9536.

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Chart created in TradingView

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

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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

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