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Mar 02 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rallies Off 3-1/2-Week Lows As TIPS Yields Retreat

By Randolph Donney  —  Mar 02 - 02:47 PM

The dollar fell on Tuesday, losing early gains as 10-year TIPS yields softened throughout the U.S. session and allowing EUR/USD to recover after breaking temporarily below 100-day moving average support.

It was the second time in four sessions that EUR/USD reversed after appearing to achieve a range breakout.

EUR/USD found a strong bid below 1.2000 after breaking the 100-DMA at 1.2028, rising back toward Monday's 1.21015 high on EBS as 10-year TIPS yields fell nearly 8bp intraday.

EUR/USD's rebound ignored further indications that next week's ECB meeting will signal a stronger response to rising yields, perhaps through greater use of PEPP nL5N2L04UBnIfp777kJD.

Thursday's Treasury yield spike and mini-panic helped reverse EUR/USD away from that day's 1.22435 high.

Fed officials have mostly remained mum about this year's rapid bear Treasury yield curve steepening, though Fed Governor Lael Brainard said bond-market volatility last week "caught my eye" nW1N2FT038.

The Fed's largely focused on the need to delay any tightening due to it's loftier inflation and employment goals that they don't see being achieved any time soon nL2N2L01J5.

For the rest of the week, Treasury yields and the dollar will be guided by Wednesday's ADP, ISM services and beige book report, Fed Chair Jerome Powell's speech on Thursday and Friday's employment report.
If the upbeat expectations for these data are met, EUR/USD's recovery could be short-lived nL2N2L01JM.

USD/JPY's 106.955 peak neared important resistance, with tech studies flashing overbought warnings nL2N2L01Q0.
But there may be one last push to key topside objectives at 107.05/08 or 107.32 before a more pronounced pullback.
The mid-Feb swing high and 50% Fibo of the June-January drop at 106.22 would then be the first important support.

Sterling, in four short sessions, nearly retraced half of this year's 1.3451-4240 advance with a fleeting 1.3860 low, near the 50% Fibo at 1.3846.
A close above Monday's high by 1.4000 would help shake off the dip below the 21-day moving average nL2N2L01I8.

British finance minister Rishi Sunak promised to do "whatever it takes" to shield the economy while exiting the pandemic nL9N2JS023.

AUD/USD extended its rebound away from the 55-day moving average that caught its fall from Thursday's peak, as last week's risk-off flows into month-end and amid the spike in Treasury yields has been followed by calmer markets, while the RBA meeting yielded only a brief pullback.

A Chinese official warned about potential cross-border financial risk tied to financial asset bubbles in the U.S., Europe and other major economies nL2N2L0074.
This as the Biden administration is maintaining a hard line toward China on trade and other issues and Chinese growth tails off.

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Refinitiv IFR Research/Market Commentary


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