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Oct 11 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Stagnates, Yen Dumped As Hawkish Fed View Survives Payrolls

By Randolph Donney  —  Oct 11 - 02:58 PM

The dollar soared to its highest in nearly three years against the yen on Monday as expectations of Fed policy normalization thrived even after disappointing U.S. jobs data last week, while EUR/USD slipped as ECB officials stuck to their transient inflationary pressures nL1N2R717I.

Fed tightening expectations have driven Bund-Treasury and Treasury-JGB yields back toward pre-pandemic levels, to the broad benefit of the dollar and contributing to USD/JPY's biggest rise since May on Monday, with the yen undermined by BOJ policy that keeps JGB yields in tight ranges near zero.

Ten-year Treasury yields are nearly 50bp above summer lows, similar to the rise in 10-year Bund yields since August, but the rate differential at about 175 basis points overwhelmingly favors the dollar.

Even with markets finally pricing in 9bp of ECB rate hiking by December 2022, futures project 34bp of Fed tightening over the same period.
More telling is that 2-year Treasury yields are nearly as high as 30-year Bund yields.

EUR/USD fell 0.15% after an early rebound attempt helped by oversold daily studies and a bounce in stocks faltered at Friday's 1.1586 high on EBS.

Focus now is on Wednesday's U.S. CPI and Fed minutes to either bolster or weaken the hawkish Fed view.

EUR/USD's 50% Fibo of the pandemic rally and the March 2020 spike high at 1.14925/495 are the next major support.
The 61.8% Fibo is at 1.1290.

USD/JPY was up 1% after barreling through 2019's high -- at 112.40 -- to a session peak of 113.41, its strongest since December 2018.

The 2.3% rise since last week's low left options market unprepared for the rapid advance and scrambling, and was all the more surprising after Friday's non-farm payrolls figure came out far below expectations.

The next upside targets are at 114.15, the 161.8% Fibo off of the August base, followed by the more important 2018 high and 76.4% Fibo of the 2016-20 slide at 114.54-55.
Prices are already overbought on daily and weekly RSIs, but so far without any indication of a correction.

GBP/USD fell marginally with an early rally on hawkish BOE comments and risk-on support to above the 50% Fibo of September's slide and other tech hurdles at 1.3662 nL1N2R711S undone by S&Ps and other equity indexes shedding earlier gains.

A close above 1.3662 would reduce the risk of a broader reversal of the 2020-21 rally due to fairly aggressive BOE rate hikes being priced in beginning before year-end.

AUD/USD was up 0.6%, helped by rising commodity prices and partial reopening of Sydney from pandemic restrictions.

USD/CNH was up 0.18% as worries about China's vast property sector persist nL1N2R70B0.

Bitcoin and ether gained about 5% and 4%, respectively.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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