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Jan 09 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Close To Major Rally, But US CPI Risk Looms

By Christopher Romano  —  Jan 09 - 09:45 AM

EUR/USD traded higher Monday as softer U.S. rates EDZ3 weighed down the dollar and riskier assets gained, but much bigger gains may be in store for longs.

Softer U.S. rates have driven 2-year German-U.S.
yield spreads US2DE2=RR, which EUR/USD is typically positively correlated with, to their tightest since early February 2022.
The yield spread ended a recent consolidation phase, which implies much more tightening is possible.

Further easing of China's zero-COVID policy nL4N33U0GD is another bullish influence.
Removing restrictions is likely to spur economic growth, which the euro zone is highly dependent upon, while also encouraging investors to seek out riskier assets such as equities, commodities and the euro.

Technicals highlight upside risks.
Daily RSI is rising and monthly RSI is about to turn higher while the rising 10- and 21-day moving averages are now providing support.
Monthly charts show a head-and-shoulders bottom forming, completion of which would suggest the 1.1700/1.1800 area may be tested.

December CPI on Thursday is a key risk.
A downside surprise could put more pressure on the Fed to take a less hawkish policy stance.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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