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Oct 25 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Clears 2022 Downtrend As Weak Data Hammers Dollar

By Randolph Donney  —  Oct 25 - 02:00 PM

The dollar index fell 0.8% after U.S. home prices nN9N2YW00V, consumer confidence nL1N31Q1IY, Philly nAQN1YOKVL and Richmond Fed nAQN1YOLYH reports disappointed and bolstered expectations the Fed is getting closer to the end of its aggressive tightening cycle.

EUR/USD rose 0.87% amid risk-on flows and broader unwinding of dollar longs, clearing the downtrend line across 2022 highs at 0.9942, as well as the 55-day moving average at 0.9927.

Key resistance comes at parity, by October's recovery high at 0.99995 on EBS, while Ifo showed Germany facing a difficult winter nL8N31Q2HM.

Treasury yields fell sharply beyond the 2-year monetary policy horizon but less than euro zone yields and markets still foresee the Fed hiking 75bp next week, but with a slightly lower peak rate.

Sterling rose 1.7% and led the majors' gains versus the dollar amid optimism regarding Britain's new prime minister, Rishi Sunak, who pledged to lead the UK out of economic crisis nL1N31Q0LJ.

The complete reversal of the spike in gilts yields and sterling losses since late September has left cable at the crucial 1.1500 hurdle that capped the early October recovery highs and are a 50% Fibo of the May-September slide to record lows.

USD/JPY fell 0.7% on the 10-13bp drops in longer-term Treasury yields.
Treasury-JGB yields spreads tumbled as JGB yields out to 10-year are cloistered by the BoJ.

The market-driven USD/JPY pullback Tuesday diminished the risk of further MoF intervention, but Finance Minister Shunichi Suzuki spoke out against "intolerable and speculative" yen-selling nL1N31Q01Y.

The USD/CNY fell from Tuesday's 15-year high due to the broader dollar pullback, less so from hopeful comments from China's Commerce Ministry nP8N31P032 following bearish market reactions to Chinese political leadership consolidation under Xi Jinping nL4N31Q0YK.

The Bank of Canada meeting Wednesday is expected to produce a 75bp rate hike.
New U.S. home sales are also on tap.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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