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May 25 - 10:55 PM

EUR/USD - RPT-BUZZ-COMMENT: EUR/USD May Be At Inflection Point As Trend Higher Develops

By John Noonan  —  May 25 - 09:40 PM

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The EUR/USD deep downward trend bottomed near the 2017 low at 1.0340 and short-term technical signals suggest a trend higher may be underway.

The near 10% fall from the February 10 high of 1.1495 to the May 13 low at 1.0349 was in great part due to the market pricing in aggressive tightening by the U.S. Federal Reserve - contrasting with a hesitant European Central Bank insisting that inflation pressures were transitory.

Adding weight on the euro was a consensus view that the war in Ukraine and associated sanctions imposed on Russia would do more harm to the euro zone economy than to the U.S economy.

Over the past two weeks, there has been a subtle shift in view, which has led to heavy EUR/USD short-covering.
The rhetoric from the ECB has turned hawkish, while weakening U.S. economic data and U.S. company profit warnings have led to U.S. growth concerns and scaled down hawkish Fed expectations nL2N2XF19QnL2N2XG27O.

The recent rise in the EUR/USD has coincided with the spread between the 10-year U.S. Treasury yield and the 10-year German bund yield narrowing from 2.02% on May 3 to 1.80% as of Wednesday.

The EUR/USD has started a short-term trend higher, with the five-, 10- and 21-day moving averages aligning in a bullish formation and pointing higher.
A break above the 38.2 Fibonacci retracement of the 2022 high/low at 1.0786 would likely see the trend higher accelerate.
Conversely, a fall below the ascending 10-dqay moving average at 1.0580 would put the trend in doubt.
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