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Jun 16 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rebounds Sharply On Fed Fallout, Weakening US Data

By Randolph Donney  —  Jun 16 - 02:50 PM

The dollar fell more than 1% on Thursday as Treasury yield spreads over competing government debt beat a hasty retreat following the Fed's extraordinary 75bps hike, a cluster of weaker-than-forecast U.S. data and a shock 50bp SNB rate increase.

The SNB's unexpected 50bp rate hike, its first since 2007 nL8N2Y31LQ, made the ECB's plans to gradually raise borrowing costs beginning in July look further out of synch with the other central banks -- including the BoE which nudged rates up by 25bps -- triggering a rise in 10-year bund yields of as much as 32bp.

EUR/USD's recovery kicked in after disappointing U.S. data yanked Treasury yields well off earlier highs, sending them to their lowest since Monday nL1N2Y317H, helped by tightening BTP-Bund yields spreads as fragmentation risk pricing receded.

EUR/USD's 1.3% gain came after bears failed for a fourth consecutive session to take out crucial 2022 and 2017 lows at 1.0349/40.
The big recovery breached tenkan, kijun, 10-day moving average and daily cloud base resistance in the 1.0567-79 range, with last Friday's high of 1.0642 next.

The leaders of the pack among the majors Friday were the haven Swiss franc up 3% and the yen up 1.3%, with the SNB's unsubtle rate hike sending the CHF/JPY up 0.75% and EUR/CHF down 1.8% and to its lowest since April's lows.

USD/JPY was weighed down by falling Treasury yields and further risk-off flows and now has the daily kijun and 50% Fibo of the May-June rally by 131 in its sights nL1N2Y31I5.

Adding some intrigue and possible further support for the deeply oversold yen is the recent breaches of the BOJ's 25bp cap on 10-yr JGB yields ahead of Friday's policy meeting, as the yen's broad plunge is creating imported inflation and the biggest trade deficit in eight years nL4N2Y21TU.

With core-core Japan inflation only at 0.8%, the BoJ is not seen following the SNB and most other central banks with a rate hike Friday, but intense and global pressure on the yield curve control policy is an issue.

Sterling ripped up the macro script a bit with 1.5% surge despite the BoE sticking to its relatively subdued pattern of steady 25bp rate rises, with the prospect of potentially bigger hikes in H2 nL1N2Y3192.
Softer Treasury yields after weaker data helped yields spreads and got prices close to where they began their breakdown last week.

Aussie rebounded briskly from early losses to gain 0.9% nL1N2Y31OW.

Most high-beta currencies were weighed down due to continued risk aversion, and bitcoin and ether fell more than 6% and 10%, but were still above Wednesday's lowest since January and February 2021.

Fed Chair Powell hits the podium on Friday ahead of industrial production for May.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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