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Jan 10 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Dips On Fed Hike Risk, Haven Yen Rises

By Randolph Donney  —  Jan 10 - 02:35 PM

The dollar rallied on Monday as investors positioned for a more hawkish Fed but then lost some of its gains as equity market concerns about higher rates tempered a rise in U.S. Treasury yields, all of which ultimately benefited the safe-haven yen.

A Goldman Sachs research note predicting four Fed rate hikes this year -- instead of the three it earlier expected -- caught markets' attention, while JPMorgan CEO Jamie Dimon said he would be surprised if it's just four increases this year nL1N2TQ1A0.

EUR/USD briefly fell toward last week's lows and the rising base of its six-week consolidation range as Bund-Treasury yield spreads fell toward November's nadir.

Treasury yields toward the front of the curve were modestly higher, but they remain below the Fed's flexible inflation target of 2% out through 10-year maturities.
Meanwhile, markets expect U.S. CPI data to show on Wednesday that annual inflation accelerated to 7% in December.

This year's 3.5% drop in the S&P 500 is reinforcing fears the Fed will have a hard time fighting inflation without triggering a stocks correction, which could ultimately truncate the tightening cycle.

Inflationary U.S. data and more hawkish Fed forward guidance hasn't helped the dollar index much, which remains mired near 6-week range supports.

EUR/USD fell 0.3% after recovering some earlier losses.
EUR/USD's downtrend remains intact but must break below the recent bear pennant formation's base to signal further losses nL1N2TQ0ZP.

USD/JPY and tumbling yen crosses were major movers amid falling global equity markets.
A dive in the Swiss franc gave the yen added haven demand.

USD/JPY fell 0.26%, with bigger EUR/JPY, GBP/JPY and AUD/JPY losses.
Overbought daily, weekly and monthly USD/JPY RSIs attracted more sellers after prices fell below the daily tenkan and 10-day moving average, putting in play Fibo and weekly tenkan targets at 114.90/45 nL1N2TQ177.

The yen's negative correlation to stocks places near-term focus on the S&P 500's 100-DMA support at 4,565, which caught December pullbacks.

The more yield-sensitive Nasdaq got near to its 14,923 200-DMA, last broken below in March 2020.

Sterling lost 0.12% after briefly clearing 1.3600 to a two-month high, but struggled as falling stocks impeded the risk-sensitive pound, which has been boosted by the BoE's rate hike in December.

Sterling has become overbought, adding significance to the reaction to Wednesday's U.S. CPI and how risk markets hold up in the face of accelerated Fed tightening.

Ether and bitcoin fell about 3.5% nL1N2TQ12G and 1% nL1N2TQ16S, respectively, making new 4-month lows.

Fed speakers are on tap Tuesday, and Fed Chair Jerome Powell appears before the Senate Banking Committee for consideration to a second four-year term nL1N2TQ0U4.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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