EURUSD experienced increased volatility during yesterday's session after an aggressive move from the European Central Bank. Today, however, the dollar is in retreat, following a disastrous reading of the PMI index for services, which plunged to 47 points, well below market estimates of 52.7 points. This is the worst reading since the beginning of the pandemic. Now the market started to price-in an incomplete hike of 75 bp at the next Fed meeting.
It is worth noting that the risk in Europe has decreased. Russia sends gas to Germany, and the ECB decided to introduce tools to counteract market fragmentation, which limits the potential for further weakness of the euro. All of this is supporting gold, which briefly dropped below $ 1,700 this week. In the first chart, we see the divergence between EURUSD and gold has been fulfilled, while in the second one, gold rebounded from a very important long-term support zone.
Source: xStation5
Source: xStation5
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