EUR/USD plagued by sustained dollar rally, weak euro
James Chen, CMT May 23, 2018 12:07 PM
On Wednesday, as markets awaited the scheduled release of minutes from the Federal Reserve’s last FOMC meeting, the US dollar continued to rally, hitting a new year-to-date high.
On Wednesday, as markets awaited the scheduled release of minutes from the Federal Reserve’s last FOMC meeting, the US dollar continued to rally, hitting a new year-to-date high. Meanwhile, as the dollar maintained its rally of the past month, the euro was hit both by political and economic worries out of Italy as well fresh eurozone economic data (services and manufacturing) that largely fell short of consensus expectations.
This week features releases of minutes from the latest meetings of two central banks – the US Federal Reserve on Wednesday and the European Central Bank on Thursday. This combination of central bank releases has the potential to make a significant impact on the struggling EUR/USD.
Helping to drive dollar strength and EUR/USD weakness in the past several weeks has been the continued rise of bond yields and interest rate expectations. Though the benchmark 10-year US Treasury yield pulled back on Wednesday, the yield has recently risen and remained elevated above the key 3.00% level, peaking last week around 3.12%, which marked its highest point since mid-2011. Wednesday's market scrutiny of the Fed minutes will focus on wording changes and any hints or indications regarding a widely expected rate hike in June. Currently, markets are pricing-in a 95% probability of such a hike.
Amid continuing dollar strength and euro weakness, EUR/USD has extended its losses to establish a new year-to-date low as of Wednesday. The currency pair has fallen sharply since mid-April, breaking down below multiple support levels in the process. With potentially a new bearish trend in place, the next major downside level to watch is around the 1.1600 level, which represents the late-2017 consolidation lows. Any major breakdown below 1.1600 has the potential to open a path towards the 1.1400 handle.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.