November 24, 2022
  • November 24, 2022

Euro drops as US dollar drags markets unchecked and Fed hawks

By on September 28, 2022 0

Euro, EUR/USD, US Dollar, GBP/USD, FED, White House, AUD, CNY – Talking Points

  • US dollar gains as Treasury yields soar on inflation-fighting Fed
  • APAC stocks fell as risk appetite dried up after a day of hope
  • All eyes are on central banks for advice or intervention

Trade smarter – Sign up for the DailyFX newsletter

Receive timely and compelling market commentary from the DailyFX team

Subscribe to the newsletter

The euro is at a 20-year low against the US dollar as a combination of Fed and White House rhetoric pulls the pin on a change in circumstances for markets.

Overnight, St. Louis Federal Reserve Chairman James Bullard reiterated the Fed’s determination to reduce price pressures when he said, “There’s a lot of tightening in the pipeline.” and “we have a serious inflation problem in the United States”.

He went on to invoke the spirit of Paul Volker and pointed out that there were 4 recessions in 13 years in the 1970s and early 80s. This was due to the high and volatile inflation that eventually was mastered by Mr. Volker.

His hawkish comments were backed by fellow Fed board members Evans and Kashkari. All of this rhetoric has taken Treasury yields to levels not seen in decades in some parts of the curve. The 10-year note rose above 4% for the first time since 2008. Developed market government bond yields globally follow the move north.

White House economic adviser Brian Deese sees no Plaza Accord-style deal, stifling speculation about any form of currency management by the administration.

EUR/USD broke below Monday’s low and traded below 0.9550 while GBP/USD is also eyeing lower levels heading into the European day.

The situation for the euro was exasperated by the potential sabotage of 3 Russian gas pipelines, pushing up prices.

The International Monetary Fund blasted the UK government’s fiscal stimulus announced last Friday and over the weekend. Bank of England chief economist Huw Pill said fiscal policy will require an appropriate response from monetary policy.

The Chinese yuan was allowed to trade at levels not seen since 2008 against the US dollar.

Australian Retail Sales came in at 0.6% for August, slightly better than forecast of 0.4%, but that didn’t stop AUD/USD from hitting a new low of 2 years.

USD/JPY is heading towards 145 again and the market will be waiting for any intervention from the Bank of Japan.

In the risky environment, APAC stocks took a dip following a benign lead from Wall Street. Futures indicate a smooth start to the North American cash session.

Crude Oil is stable with the WTI futures near US$77.50 a barrel while the Brent contract is slightly lower at US$85.30 a barrel. Gold remains anchored around US$1,625 an ounce.

The US will see the mortgage and inventory data, but central bank speakers will once again be in the spotlight. The focus will be on remarks from Fed Chairman Powell.

The full economic calendar can be viewed here.

Recommended by Daniel McCarthy

How to trade EUR/USD

EUR/USD TECHNICAL ANALYSIS

EUR/USD hit a new 20-year low today, breaking below several support levels while remaining in a descending trend channel.

The lower band of this trend channel may provide support. On the upside, resistance could be seen at the breakout points of 0.9864 and 0.9945.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

element inside the

element. That’s probably not what you wanted to do! Upload your application’s JavaScript bundle to the item instead.