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Aug 17 - 01:55 PM

EUR/USD - COMMENT-Diverging Fed, ECB Paths Should Limit EUR/USD Downside

By Christopher Romano  —  Aug 17 - 11:35 AM

EUR/USD traded flat on Wednesday after clawing back some earlier losses following July U.S. sales data nL1N2ZS1HC, with technicals indicating a resumption of losses even though diverging central bank expectations could prevent a major collapse.

Eurodollar futures show investors expect the Fed to begin cutting rates in mid-2023 EDU3 with a total of nearly 140bp of loosening expected by Q3 2026 EDH26.

Euribor futures indicate the ECB is still expected to hike rates until Q3 of 2023 FEIU3, with no cuts priced in thereafter.

This divergence should keep EUR/USD from falling sharply even though technicals highlight downside risks.

EUR/USD is consolidating losses from the August 10 daily high while it holds below the 10- and 21-DMAs.
Monthly RSI is oversold but not diverging and a monthly inverted hammer candle has formed.

Investors will focus on Fed rhetoric regarding inflation.
Should the Fed minutes and Fed speakers hint that inflation may be moderating EUR/USD is unlikely to fall at all.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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