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Nov 02 - 05:55 PM

EUR/USD - COMMENT-Mixed Fed Messages Increase EUR/USD Downside Risks

By Christopher Romano  —  Nov 02 - 04:00 PM

EUR/USD fell on Wednesday after giving up earlier gains and could be headed for a test of the September low after Fed Chair Jerome Powell threw cold water on expectations that the U.S. central bank was turning dovish.

Initially, EUR/USD rallied above the daily cloud top to a 3-session high after the Fed statement delivered the as-expected 75 bps hike and indicated smaller increases in future as policymakers take into account cumulative tightening already delivered nL1N31X1O9.

Those gains were quickly erased however after Powell said it was premature to think of a pause and that the Fed can use its tools to respond if they overtighten.

Powell also said failure to tighten sufficiently would risk inflation becoming entrenched.

U.S.
rate markets reversed the post-statement drop and turned higher on the session.
March 2023 Eurodollar futures prices EDH3 hit a record low while U.S. two-year yields US2YT=RR climbed above 4.60%.

The dollar rallied broadly as risk soured.
EUR/USD dropped below the 21-day moving average and daily cloud base, giving a bearish tone to the chart signals.

A daily inverted hammer candle formed while daily and monthly RSIs turned lower to imply downside momentum is back.

Unless risk sentiment improves EUR/USD risks are to the downside, which would put the September in the spotlight.

For more click on FXBUZ


Source:
Refinitiv IFR Research/Market Commentary

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