- The euro attempts to find support at 1.1535 after losing more than 1% on the day.
- The US dollar appreciates with the investors bracing for the Fed’s meeting next week.
- Higher US bond yields and hawkish Fed expectations have crushed the euro.
The euro plummets with the US dollar firming up
The common currency has lost on Friday all the ground it gained on Wednesday and Thursday’s rally, weighed by the US dollar’s strength. End-of-the-month moves, as the market positions for the Federal Reserve’s monetary policy meeting next week and higher US Treasury bonds might have been the main reason for the sharp EUR/USD reversal.
The Bureau of Economic Analysis revealed today that US Core Personal Consumption Expenditures, the Fed’s favourite inflation gauge, accelerated 3,6% year-on-year in September. These figures come to reaffirm the theory that the US central bank will be forced to accelerate its monetary normalization plans, which, less than one week ahead of November’s meeting, has boosted demand for the USD,
Against this backdrop, US-T bond yields edged up again, with the 10-year note reaching levels near 1.6%, which has increased bullish pressure on the US dollar.
EUR/USD: Reaching levels right above long-term lows at 1.1525
The euro is ticking up from session lows only a few pips above year-to-date lows at 1.1525. With technical indicators approaching oversold levels, the pair could attempt a correction, aiming to previous lows at 1.1585 before testing October 26 and 27 highs at 1.1625 and, if that level gives way, prepare another attack to 1.1700 area.
The near-term bias, however, remains fairly negative and we should not discard further decline next week. In that case, the area between October low at 1.1525 and the 50% Fibonacci retracement of the March 2020 – January 2021 rally, at 1.1500 represents an important support range that would open the path towards June 2020 highs at 1.1420.