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Sep 14 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Dives Below May Lows As ECB Hints Hikes Are Over

By Randolph Donney  —  Sep 14 - 02:40 PM

In markets where what's next is often more important than what's just occurred, EUR/USD tumbled 0.85% to probe May's key lows after the ECB raised rates on Thursday while signaling the move was probably their last hike before cutting next year.

With inflation in the euro zone still well above the ECB's 2% target the door to hike again was left open, but the market sees little risk of that happening.

The dollar index rose 0.6%, largely on the back of the EUR/USD and GBP/USD slides, as USD/JPY was roughly flat.

The U.S. currency lost ground to the Australian and Canadian dollars amid risk-on flows stemming from the ECB and Fed now being seen finished tightening.

That view was reinforced by Thursday's above-forecast U.S. retail sales and PPI reports that were up largely a result of higher gasoline prices.

WTI prices are now up 7.8% this month and at new 2023 highs.
That could crimp discretionary spending amid expensive and tightening credit, diminished pandemic savings and pending resumption of student loan payments.

But it could also make it harder for the Fed to end rate hikes if headline inflation rises.
At any rate, traders will be looking for EUR/USD to fall toward March's 1.05165 low on EBS if it closes below May's 1.0635 low.

The broader dollar index is also probing crucial resistance, which if cleared could cause specs to more quickly liquidate their substantial dollar shorts, that as Treasury-bund yield spreads could re-widen after next week's Fed meeting.

Sterling was already under pressure before the ECB and U.S. data releases, as signs of UK stagflation and tougher BoE policy choices weigh.
Thursday's slide sent prices below the pivotal 200-day moving average that caught Wednesday's lows.

USD/JPY traded in line with the Treasury yields' choppy range that finally moved higher on the day.
Prices found support at 147.02 on EBS, which was also Wednesday's low, but the uptrend is in its eighth day of consolidation below 148 as Fed rate hike expectations have also stalled.

Friday features a raft of Chinese data and U.S. industrial production and Michigan sentiment.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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