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Apr 08 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Down, But March Lows Hold With ECB In Focus

By Randolph Donney  —  Apr 08 - 02:50 PM

The dollar index rose on Friday above 100 for the first time since May 2020, but ran into offers ahead of the pandemic recovery's Fibo-projected peak at 100.29, as EUR/USD found support just above March's lows ahead of next week's ECB meeting and key U.S. CPI and retail sales reports nL2N2W614I.

The pace of EUR/USD's slide has slowed since Wednesday's ECB meeting accounts raised H2 rate-hike expectations slightly and brought forward and helped quantify likely balance sheet runoff nS0N2UR064.

That allowed 2-year Bund-Treasury yield spreads to recover roughly 9 bps from Tuesday's -2.56% closing lows.
However, renewed Treasury yield curve steepening extended the tumble in 10-year Bund-Treasury yield spreads from March's -1.70% high to -2.00% Friday.

With no end in sight to the war in Ukraine nL2N2W52ZO and the ECB studying how to fight inflation without causing economic and financial pain, particularly among the more highly indebted euro zone members, the euro remains at a disadvantage to the dollar as the Fed delivers aggressive inflation-fighting guidance.

Europe and the euro have been spared some of the worst economic fallout from Russia's Ukraine invasion and subsequent sanctions nL2N2W52ZO.
That due to strategic petroleum reserve releases and Chinese COVID lockdowns weighing on oil prices, as well as the EU not halting natural gas supplies from Russia.

But reserves will eventually have to be rebuilt, lifting oil prices, and the EU will eventually have to pay up for non-Russian natural gas.

In the interim, U.S. natural gas prices are rising versus European gas prices as U.S. LNG exports to Europe are seen as a leading replacement for lost Russian pipeline supplies.

EUR/USD was down 0.02%, after recovering from Friday's 1.08365 low on EBS.
A Bloomberg story about the ECB working on a plan to deal with potential euro zone fragmentation risk likely inspired some pre-weekend short profit-taking with key supports close by.

The euro is confronting political stress before Sunday's first round of the French presidential election nL2N2W6123.

EUR/USD is close to closing below the 76.4% Fibo of the 2017-18 advance at 1.0863, as well as the uptrend line across 2017-20 lows at 1.0825, with March's 1.0806 trend low at risk below.

Sterling was down 0.34% after dipping to its lowest since November 2020, as 10-year gilt-Treasury yield spreads continued to plunge, with inflation in the UK adding to households' gloomy financial outlook nL5N2W62JQ and allowing Fed hiking prospects to outshine those of the BoE nL2N2W611T.

USD/JPY was up 0.34% and near 2022's 125.105 pandemic recovery peak on EBS.
But the much bigger hurdle is 2015's 19-year peak at 125.86 nL2N2W61BB.

USD/JPY, now 11.5% above its 2020 high, has led the dollar's gains because the BOJ is the sole reserve currency central bank yet to tighten or at least provide tightening guidance, instead increasing JGB purchases to keep yields in check.

Commodity currencies were mixed, as were cryptos.

Next week's main events are Tuesday's U.S. CPI and Thursday's ECB and U.S. retail sales.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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