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Sep 30 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Down But Dollar Mixed As Treasury Yields Dip

By Randolph Donney  —  Sep 30 - 02:46 PM

The dollar index rose to fresh trend highs on Thursday but then retreated from its peak to stand little changed in late trade as profit-taking on recent gains in sterling and yen punctuated the month's end.

U.S.
jobless claims rose unexpectedly nL1N2QV2EI, markets confronted

increasing doubts about U.S. fiscal stimulus plans nL1N2QW1IP and ongoing global supply problems remained a concern, all helping to pull Treasury yields and stocks lower, which weighed heavily on the rates and risk-sensitive USD/JPY.

EUR/USD extended this week's break of major supports despite the dollar's pause elsewhere and was last down 0.2% on the day and 1.24% on the week after recently falling beneath 2021's lows and other key lows from H2 2020.

With markets viewing the ECB as far less likely to tighten than the Fed over the next few years nL8N2QU3NK, U.S. monetary policy could drive Treasury yields higher versus EGB yields and the EUR/USD lower.
Treasury yields remain a clear draw for European savers and investors with core euro zone bond yields still negative.

Though bounces to correct oversold EUR/USD prices could squeeze out some shorts, the charts and Fed-ECB policy divergence remain bearish nL1N2QW1K9.

Sterling rebounded 0.4% after holding support near 1.34, UK Q2 GDP beat forecast nL1N2QW1K9 and 10-year Gilt-Treasury yield spreads extended their rise to 11-month highs.
The pound was also helped by EUR/GBP's fall after it retreated from Wednesday's peak without touching July's highs.

USD/JPY fell 0.5% after Thursday's overbought 112.08 high barely eclipsed Wednesday's new 2021 and pandemic recovery high of 112.05 and stopped shy of the 112.23 EBS pandemic peak from 2020 nL1N2QW1Q6.

Selling accelerated after the disappointing jobless claims triggered a pullback in Treasury yields and stocks, which lifted the haven yen broadly.

If Friday's U.S. PCE, ISM and Michigan sentiment fail to push USD/JPY past 2020's peak of 112.23 and nearby long-term hurdles up to 112.43, prices could head for Fibo retracements at 110.95 and 110.60, though more of the 118.66-101.18 pandemic slide is likely to be retraced in time.

AUD/USD rebounded 0.68%, following USD/CNH's 0.36% slide and broader month-end position squaring, but the 0.7257 high ran into offers by the daily cloud base.

Bitcoin and ethereum gained roughly 6% as the Fed tries to tackle the prickly issue of the plausibility of a digital dollar nL1N2QI23P.

Global PMIs are on tap for Friday, with expectations generally brought lower by the Delta variant and supply problems.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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