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Apr 15 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Teeters By Lows On Hot US Data, Middle East Risk

By Randolph Donney  —  Apr 15 - 02:35 PM

The dollar index gained 0.2% due largely to a 0.6% USD/JPY rise toward major resistance by 155, while EUR/USD and sterling slumped following febrile U.S. retail sales data and another wave of Middle East related derisking.

The yen was the weakest of the major currencies.
JGB yields remain puny compared to all major currencies except for the Swiss franc and the MoF and BoJ have yet to follow through on threats to support the yen, which hit 34-year lows versus the dollar.

Concerns about an escalating Middle East conflict reappeared and added to dollar gains from the major retail sales beat and upward revisions.

USD/JPY's 34-year high at 154.45 took it within easier reach of major resistance at 155.00/20.
The 155 level is seen as a potential BoJ FX intervention spot and is also suspected to contain a large barrier option.

Intervention would have to be based on containment of excessive price moves and volatility, as recent U.S. inflation, employment and retail sales data all back dollar gains and higher Treasury-JGB yield spreads.

If intervention occurs it would benefit from USD/JPY being at its most overbought since October 2022, when Japanese officials stepped in to protect against a 152 breakout.
IMM specs are the most net long since 2007 amid heavy demand for the carry trade.

EUR/USD fell 0.14%, with its 1.0622 low on EBS right by Friday's 1.06225 trough and weakest since Nov.
Divergence between the ECB, which has signaled a possible June rate cut, and the Fed remaining hesitant to ease leaves EUR/USD at risk of retesting 2023's lows unless the macro and monetary policy outlook improves.

Sterling fell just 0.07%, but Monday's slide from 1.2498 was near Friday's trough of 1.2423, which was its lowest since Nov.

A deluge of key UK data this week are now eyed as a guide for whether the BoE can cut rates as soon as June and whether inflation retreats enough to allow for the two rate cuts priced in by year-end versus the 44bp now expected from the Fed after a July or September initial rate cut.

The risk-sensitive sterling was also under pressure from Monday's S&P 500 break below 50-day moving average support.

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Refinitiv IFR Research/Market Commentary


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