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Aug 15 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Hammered As China, US Data Trigger Growth Worries

By Randolph Donney  —  Aug 15 - 02:55 PM

The dollar rallied on Monday as the euro and other currencies sensitive to global growth took a beating in the wake of weak Chinese data and a PBOC rate cut nL4N2ZO0XF as well as a dismal U.S. Empire State manufacturing reading.

The fear trade sparked flows into the yen and dollar, but recovering equities eventually took the wind out of the Japanese currency's sails.

The Empire State manufacturing index plunged 42.4 points to -31.3, its second-largest drop ever, while NAHB homebuilder sentiment tumbled 6 points to 49 its lowest non-pandemic reading since 2014 nL1N2ZR0YB.

EUR/USD fell 1%, ignoring the post-data fall in Treasury yields since markets still foresee the Fed hiking borrowing costs to roughly three times the projected terminal ECB rate.

EUR/USD broke below the 21-day moving average at 1.0211, and last week's recovery highs were roundly rejected by the 55-DMA, twin Fibos and looming cloud cover.

The broader downtrend could resume if upcoming U.S. data and hawkish Fed speakers reinforce bearish chart patterns nL1N2ZR0XV.

USD/JPY was down 0.3%, but well off the day's 132.555 EBS lows.

The damage from spec longs trimming positions after the July Fed rate hike was limited in August to 130.40, by the 23.6% Fibo of the 2020-22 uptrend at 130.365.

As of last Tuesday, net spec longs had fallen to the smallest since March 2020's reversal from net shorts, while USD/JPY remains below where it was before the Fed hiked rates 75bp in both June and July nL1N2ZR110.

But prices have been unable since last September to close below the daily cloud or the 100-DMA, last at 131.45.

Sterling fell 0.63%, and was by its 1.2051 low by the 30-DMA.

While the BoE is giving the Fed a run for its money with expected rate hikes this year, medium-term Treasury yields remain well above gilt yields and the UK's inflation outlook is worse than in the U.S. nL1N2ZR123.

AUD/USD's 1.44% dive came in response to worries about China and falling commodity prices.
There is also growing concern about Australia's frothy housing market in the face of RBA rate hikes.

The Canadian dollar fell 1% on broader USD haven buying, and a 5.3% dive in Canadian home sales nO8N2V300N, with losses then limited due to Monday's woeful U.S. data.

Bitcoin and ether were modestly lower, but both well off their intraday highs.

Tuesday features August ZEW for Germany and the euro zone, the U.S. housing starts and industrial production.
Wednesday's retail sales and Fed minutes are bigger issues ahead of the Fed's Aug.
25-27 Jackson Hole Economic Policy Symposium.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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