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May 18 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD's 2022-23 Uptrend Broken By Waning Fed Cut Hopes

By Randolph Donney  —  May 18 - 02:15 PM

The dollar index rose 0.67%, clearing key resistance, and hitting its highest since May 20 as better-than-expected U.S. jobless claims data and waning bank and debt default angst lifted Treasury yields and the outlook for the U.S. economy, with H2 Fed cut pricing shorn and risk of a June hike inching higher.

The dollar index rallied well past the middle of the March-April banking crisis driven drop at 103.33, with February and April's 100.80/78 double-bottom being confirmed and March's 105.88 high by long-term 38.2% Fibo and 200-day MA resistance on the trader radar.

EUR/USD continued its two-week tumble, below the 100-DMA and 50% of its March-April U.S. banking crisis rise at 1.0806, and also the uptrend line from last year's lows.
It lost 0.67% and is by Thursday's lows.

A spate of downside surprises in euro zone data, China's disappointing pandemic reopening and the reduction in dollar dimming banking, Treasury default and recession fears are forcing EUR/USD lower.

Fed officials on Thursday reinforced the message that aggressive rate cuts the market had been pricing in were highly unlikely.
The market priced out one of three 25bp rate cut in H2 and it now assigns a 33% probability to June hike.

Two-year Treasury yields are up by April's 4.28% high, about halfway between March's pre- and post banking crisis highs and lows.

Sterling fell 0.7%.
That follows last week's pandemic recovery high being roundly rejected by the downtrend line across 2021-22 highs.

USD/JPY surged above 2023's prior peaks at 137.78/90 as rising Treasury-JGB yield spreads and better risk acceptance paved the way for half of the 151.94-127.215 dive from last year's peak to this year's low at 139.58 to be reached.

USD/JPY's 0.67% gain was more similar to dollar gains versus the yuan, euro and sterling, in part because of risk associated with Friday's Japanese CPI report.

Though the BoJ has reaffirmed a thorough review of its policies is needed, rather than rushing away from extreme accommodation, any whiff of tightening as inflation rises further above target, could trigger overbought USD/JPY prices to correct.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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