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Dec 17 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Longs Can't Shake That Sinking Feeling

By Christopher Romano  —  Dec 17 - 10:08 AM

EUR/USD slid on Friday as the rally that followed the Fed, ECB and BOE meetings seems to have run its course, leaving longs to confront a familiar set of daunting factors from interest rates to technicals suggesting the down trend is likely to resume.

Retreating risk markets softened global interest rates but rate differentials still give the dollar the advantage.
Eurodollar EDK2 and Euribor FEIH3 pricing indicate investors still expect the Fed to be more aggressive than the ECB in with rate hikes.

Though the ECB announced adjustments to its QE program, it will remain accommodative, while the Fed increased the pace of tapering and is expecting three hikes in 2022.

The dollar's yield spread advantage persists, with the widening trend in German-U.S.
2-year spreads remaining intact.

In technicals, EUR/USD has struggled to maintain upside momentum above the 61.8% Fibo of the 1.0632-1.2349 rally and the 10- and 21-day moving averages.
Falling daily and monthly RSIs indicate downside momentum.
Consolidation, which is typically a continuation pattern, of the fall from September's peak is ongoing while EUR/USD trades in the 1.1185-1.13090 zone.

Should November's monthly low break, EUR/USD longs may throw in the towel and a test of the 1.1000 area is then likely.

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Refinitiv IFR Research/Market Commentary


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