The Eurodollar is trading down very sharply today, losing another 0.4%. The dominance of the USD seems unquestionable at the moment, and a number of different factors are leading to this; from macro data to bond yields prompting capital to invest funds, in US Treasury securities. Yields on 8-week U.S. Treasury bonds rose above 5% yesterday, and over the past two sessions yields on 10-year notes have risen more than 0.2%.
- The magnitude of the move is essentially accompanied by rather hawkish voices from the ECB, joined today by Kazaks. The ECB member conveyed that if nothing extraordinary happens, the bank will begin easing policy in June.
- In addition, brent crude oil returned above $90 today, suggesting that its possible further rise due to, among other things, the prospect of an Iranian attack on Israel and attacks on Russian refineries could prove to be further fuel to strengthen the dollar and weaken the EURUSD.
- Evidently, the commentary stands in contrast to statements by Fed members, who have been suggesting for several days that one should still wait for incoming data, as current rates may be de facto less of a stopgap for the strong US economy than expected.
- The solid data from jobless claims we learned yesterday will reassure the Federal Reserve that cuts should not even be discussed until inflation shows renewed improvement in services. As a result, a number of banks and institutions have shifted their expectations for policy easing in the US only in the fall, at a time when the ECB's decision in the summer seems rather a foregone conclusion.
Today, the market is mainly waiting for 3 PM GMT, where inflation expectations and consumer sentiment according to the University of Michigan survey will be published. An upward surprise in either reading could strengthen the dollar all the more, as yesterday some Fed members indicated that so far inflation expectations remain in line with the Fed's policy target. Any divergence in this aspect could be seen as another argument for a 'higher for longer' policy.
EURUSD, D1 interval
Looking at the EURUSD chart on the daily interval, we see that the pair has settled below the SMA200 and is trading in a bearish head-and-shoulders pattern. The overall picture seems to be downward for the Eurodollar quotes, until we see an attempt to overcome 1.08. Meanwhile, the 1.07 level has not been maintained, and despite the lack of surprise from today's final data from Germany and France and higher-than-forecast data from Spain. Significantly, the declines are taking place on heavy falling volume.
Source: xStation.
