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May 24 - 04:55 PM

EUR/USD - COMMENT-US Recap: Debt Ceiling Sentiment Keeps EUR/USD Hamstrung

By Paul Spirgel  —  May 24 - 03:30 PM

The USD index extended its recent rally to a two-month high of 103.91 on a confluence of lingering U.S. debt ceiling uncertainty and a rise in China-Russia geopolitical angst which weighed on risk broadly.

The dollar held most of its gains as the NorAm close approached helped by relatively hawkish comments from the Fed Governor Christopher Waller, who said he is concerned about the lack of progress on inflation and his decision whether to hike or skip a hike in June will depend on data over the next three weeks.

Minutes from the Fed's May 2-3 Fed meeting included no new information that might inform the direction of near-term policy.

The minutes said if the economy evolves along lines of their outlook further policy firming may not be needed, though some participants thought additional policy firming might be warranted.

Russia's prime minister signed a set of agreements with China on Wednesday during a trip to Beijing, describing bilateral ties at an unprecedented high, despite criticism of their relationship in the West as the war in Ukraine drags on.

EUR/USD fell 0.06% to 1.0765.
Though it dipped below recent support in the low 1.0760s, bears were unable to push it significantly lower as further support entered the market near 1.0750.

EUR/USD weakness was counterbalanced by EUR/GBP buying, even after UK inflation came in higher than expected.

USD/JPY broke above recent resistance in the 138.75-88 area, rallying to a six-month high of 139.41 after Waller's comments but backed away from the peak after the Fed minutes offered no new impetus for bets on higher U.S. rates.

USD/JPY finds resistance ahead of 139.59, the 50% Fib of the 151.94-127.22 October-March slide.
A close above 139.58 would add to the already bullish USD/JPY structure, putting the weekly high of Nov 25 at 142.25 in focus.

GBP/USD continued its descent, falling 0.33% to 1.2374.
The pound came under pressure amid broad risk-off tones related to the debt ceiling crisis.

Meanwhile, the UK inflation miss calls into the question the ability for the UK government to reduce inflation as forecast, while highlighting the deleterious effects of persistent inflation on the UK economy.

Bitcoin fell 3.5% to $26.3k amid the higher Fed rate outlook.
Support at the 100-DMA by $26.6k gave way, putting the 50% Fib of $19.6-$31K at $25.3k in focus.
A close below the 50% Fib would open the way for a run to the March 15 low at $23.9k.

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Refinitiv IFR Research/Market Commentary


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