Euro Caught in US Dollar Crosshairs as Volatility Grips Markets. Will EUR/USD Visit New Lows?

Euro Caught in US Dollar Crosshairs as Volatility Grips Markets. Will EUR/USD Visit New Lows?

EURO, EUR/USD, US Dollar, Nasdaq 100, Treasuries, AUD – Talking Points

  • The Euro remains hostage to wild swings amongst risk off sentiment
  • APAC equities joined Wall Street lower as higher rates take their toll
  • With volatility on the rise, what does it mean for EUR/USD?

The Euro spent the Asian session clawing back yesterday’s losses to the US Dollar as equity markets appear to have grasped the consequences of higher rates.

Wall Street tanked overnight after disappointing earnings report from Target Corp. followed on from the previous day’s miss from Walmart Inc. This raised concerns of margin compression for the retail facing sector as consumers shy away from escalating prices while the companies are hurting from rising input costs.

Tech stocks sunk as higher rates undermine their value more so than traditional businesses. The Nasdaq finished the cash session down 4.73%. APAC equities are in a sea of red.

Treasuries have seen a lot of action with the demand for the US government backed bonds soaring, sending their yields lower across the curve.

The exception has been the 1-year note, where yields have soared due to the market realising that the Fed is ready to hike aggressively.

That rate that investment grade borrowers have to pay above the swap rate has widened. Known as the credit spread, this is indicative of growing concerns of the economic outlook.

While stocks have continued on from the North American lead lower, currencies have largely reversed in Asian session today. The Japanese Yen is the largest underperformer, perhaps due to rising US yields in the short end.

The Australian Dollar was higher but that was due to broader market machinations. Domestically, the April unemployment rate came in at 3.9% as forecast and against 4.0% previously.

This is the lowest Australian unemployment rate since the 1970s and gives the RBA

possible scope to accelerate their rate tightening path.

With so much volatility, it seemed a touch unusual that gold hardly moved, trading near US$ 1815 an ounce. Crude oil found some support as underlying supply issues remain.

Looking ahead, focus will be on central bankers’ comments crossing the wires. In particular, ECB members will be watched closely, as a rate hike appears to being put on the table.

The full economic calendar can be viewed here.

EUR/USD Technical Analysis

EUR/USD is exhibiting lower highs and lower lows, illustrated by descending trend lines above and below the price.

Support could be at the recent low of 1.0349 or the January 2017 low at 1.0340. On the topside, resistance could be at the recent high of 1.0638 or the break down point of 1.0758.

With all short, medium and long term simple moving averages (SMA) displaying a negative gradient, bearish momentum might still be in play.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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Originally Posted on: https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2022/05/19/Euro-Caught-in-US-Dollar-Crosshairs-as-Volatility-Grips-Markets.-Will-EURUSD-Visit-New-Lows.html
By: Daniel McCarthy

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