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28 Oct 2022

EUR/USD hovers at make or a break around 0.9960, yields drop further

  • EUR/USD is on the verge of delivering a break of the 0.9960 support amid negative market sentiment.
  • A resurgence Russia-Ukraine war fears and less hawkish policy guidance by the ECB weighed on Euro.
  • The US Treasury yields are facing the heat of declining bets for a bigger rate hike by the Fed.

The EUR/USD pair is auctioning on the edge of critical support of 0.9960 in the Tokyo session. The asset could continue Thursday’s downside momentum amid a rebound in the risk-off impulse. Also, ‘Buy on rumor, sell on news’ indicator was triggered on Thursday after the European Central Bank (ECB) tightened its policy and pushed interest rates highest to 9% since 2009.

Meanwhile, the US dollar index (DXY) is oscillating around 110.60 and is looking to remain solid amid the risk-aversion theme. The 10-year US Treasury yields have dropped to 3.93%, at the time of writing.

An announcement of a 75 basis point (bps) rate hike by ECB President Christine Lagarde dragged the euro bulls. The extent of the rate hike remained in line with the estimates as a historic surge in inflation is required to be tamed. The unwinding of gigantic stimulus requires a heap of policy-tightening measures.

ECB’s Lagarde cited Russia's invasion of Ukraine and other global uncertainties responsible for downside risks in the Eurozone, and upward bias for inflation.

For guidance on interest rates, analysts at Commerzbank, point out Christine Lagarde sounded dovish at the press conference but they still see that another big rate hike for the December meeting remains on the table.

The shared currency bulls also witnessed extreme selling pressure on Thursday as market sentiment dampened after the US government announced military aid of $275 million to Ukraine to drive Russian rebels out of key areas.

On the US front, declining odds of a bigger rate hike by the Federal Reserve (Fed) have weighed on the returns generated by US Government bonds. A drop in consumer spending expansion in the third quarter at 1.4% vs. the prior release of 2.0% has indicated that inflationary pressures are exhausting.

 

 

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