EUR/USD at 18-month lows with ECB on tap – Minimal support until
EUR/USD is putting the finishing touches on a brutal week, with the world’s most widely-traded currency pair falling over 200 pips week-to-date to hit its lowest level in more than 18 months.
Not surprisingly, the weakness in the pair was driven by the same factor driving the greenback higher across the board: higher yields, especially on the short end of the curve. In this year’s first FOMC meeting, Fed Chairman Jerome Powell refused to rule out raising interest rates at every (remaining) monetary policy meeting this year and also left the door to open to a potential 50bps “double hike.” These comments drove the yield on the 2-year treasury bond up nearly 30bps trough-to-peak this week, though they’ve come in a bit on Friday.
Unfortunately for EUR/USD bulls, the focus in the next week will be on the ECB, which is likely to reiterate that interest rates on that side of the Atlantic won’t be rising any time soon, underscoring the stark monetary policy divergence between the ECB and Fed.
While short-term bounces are definitely a possibility after such a precipitous drop, the bears will maintain the upper hand in EUR/USD as long as rates remain below previous support at 1.1200. Meanwhile, the breakdown from the bearish flag pattern suggests that EUR/USD could eventually reach previous-resistance-turned-support from back in 2020 near 1.1000 in the coming weeks.
Not surprisingly, the weakness in the pair was driven by the same factor driving the greenback higher across the board: higher yields, especially on the short end of the curve. In this year’s first FOMC meeting, Fed Chairman Jerome Powell refused to rule out raising interest rates at every (remaining) monetary policy meeting this year and also left the door to open to a potential 50bps “double hike.” These comments drove the yield on the 2-year treasury bond up nearly 30bps trough-to-peak this week, though they’ve come in a bit on Friday.
Unfortunately for EUR/USD bulls, the focus in the next week will be on the ECB, which is likely to reiterate that interest rates on that side of the Atlantic won’t be rising any time soon, underscoring the stark monetary policy divergence between the ECB and Fed.
While short-term bounces are definitely a possibility after such a precipitous drop, the bears will maintain the upper hand in EUR/USD as long as rates remain below previous support at 1.1200. Meanwhile, the breakdown from the bearish flag pattern suggests that EUR/USD could eventually reach previous-resistance-turned-support from back in 2020 near 1.1000 in the coming weeks.