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Jan 02 - 03:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Nearly Halves Dec Fed Pivot Rally Pre-Key US Data

By Randolph Donney  —  Jan 02 - 01:35 PM

The dollar index rose 0.8% on Tuesday as profit-taking on short trades entered after the unexpectedly dovish Dec.
12-13 Fed meeting sent Treasury yields and rate pricing tumbling and risk-taking soaring to extremes ahead of this week's crucial U.S. labor market and ISM releases and FOMC meeting minutes.

The dollar's post-Fed meeting slide became oversold and occurred despite Treasury yields not falling to new lows versus bund or gilts yields in the weeks that followed.

Much of the frothy dollar sell-off was tied to risk-on flows and exiting of haven dollar positions, as the reversal of the Fed's most aggressive rate hiking cycle in four decades got priced in for 150bp of 2024 rate cuts.

Whether that amount of easing and haven dollar selling got ahead of the data is the question being asked ahead of Wednesday's ISM manufacturing and JOLTS, Thursday's ADP and jobless claims and Friday's employment, ISM non-manufacturing and factory orders releases.

Those releases are generally forecast to affirm a cooling but still fairly tight labor market with inflationary pressures receding, though with some way to go before hitting the Fed's 2% target.

Tuesday's final S&P global U.S. manufacturing PMI at 47.9 versus the 48.2 flash and October's 49.4 fit the slowing growth mold.

But euro zone PMIs remain more depressed. UK manufacturing PMI slipped to 46.2 from 46.4 flash. China's official index fell to 49.0 from 49.4.

EUR/USD fell 0.82%, and its 1.1046-0941 range neared the 50% retracement of December's surge at 1.0931.
That is also the daily kijun and 21-day MA.
The drop from last week's 1.11395 trend high is correcting bearish overbought daily RSI divergence.

USD/JPY rose 0.8% to probe resistance either side of 142, a close above which is needed to make a pass at resistance by 143.
But a broader recovery of the post-Fed-meeting slide will require hotter than forecast U.S. data to revive Treasury-JGB yield spreads which made major new lows into year-end.

Sterling fell 0.77%, succumbing largely to the same pressures as EUR/USD, though with gilt-Treasury yield spreads having badly lagged price gains in late December.

USD/CAD rose 0.63%, with Canada's PMI at 45.4 from 47.7 and a 3-1/2-year low.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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