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Jan 10 - 09:55 PM

EUR/USD - COMMENT-Crunch Time For EUR/USD Bears As Powell Set To Testify

By John Noonan  —  Jan 10 - 08:45 PM

The resilience of the euro against the U.S. dollar over the past two months, despite a decidedly hawkish turn in Federal Reserve expectations has to be a source of frustration for EUR/USD bears.

The message from Fed officials since late last year has been increasingly hawkish.
Last week, the release of the minutes from the December FOMC meeting signalled they were ready to raise interest rates sooner than the market expected nL1N2TL1UH.

On Monday, major Wall Street banks forecast four Fed hikes in 2022 - up from three just a week ago nL1N2TQ1G3.

The U.S. Treasury market has taken heed and yields are soaring higher.
The 10-year Treasury yield has traded above 1.80% for the first time in nearly two years and is up nearly 45 basis pips since Dec.
21.

Despite the jump in U.S. yields, the EUR/USD continues to trade sideways, spending most of the last eight weeks bouncing between 1.1200 and 1.1400.
The narrow range trading is likely the forerunner to a large breakout in the coming days or weeks.

Federal Reserve Chair Powell testifies before a congressional hearing later on Tuesday and will likely address what action the Fed will take to curb rising inflation.
The reaction to his comments may be the catalyst for the next EUR/USD trend.

Key resistance is at the 55-day moving average, which comes in at 1.1365 today.
The EUR/USD has remained below that reading since September 16 and a break would likely spark heavy short-covering.
There is trend-line support at 1.1265 and break below the line would suggest a resumption of the trend lower.

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Source:
Refinitiv IFR Research/Market Commentary

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