Lofty treasury yields and the reign of the US dollar, the euro faces a decline, leading to a potential drop in EUR/USD

6 September 2023, Wednesday
Lofty treasury yields and the reign of the US dollar, the euro faces a decline, leading to a potential drop in EUR/USD

The Euro Struggles as US Dollar Gains Momentum


US Debt Market and Treasury Yields


The Euro is currently at a low point, while the US Dollar is doing well. This is because the US debt market has been flooded with $36 billion of corporate issuance, which has caused debt markets to sink and yields to rise. The benchmark 10-year bond in the US is currently at 4.27%, which is higher than last Friday’s rate of 4.06%.


Japanese Yen and Monetary Policy


The Japanese Yen has gained some strength recently. Masato Kanda, Japan’s Vice Minister of Finance for International Affairs, commented on speculative moves in foreign exchange and stated that the government will handle them appropriately. BoJ board member Hajime Takata also spoke about monetary policy but did not make any significant changes. He did mention that the bank will be patient with any adjustments.


Australian Dollar and GDP Data


The Australian Dollar has not been performing well, despite better-than-expected GDP data. The second quarter GDP came in at 0.4%, which was in line with forecasts. The annual read was 2.1%, higher than the anticipated 1.8%. This indicates an upward revision to previous releases.


Crude Oil Prices


Crude oil prices have reached new highs after Saudi Arabia and Russia committed to maintaining their production cuts until the end of the year. The WTI futures contract is above $86.60 per barrel, while the Brent contract is near $90 per barrel. Spot gold prices remain steady just below $1,930.


Wall Street and APAC Indices


The higher cost of borrowing and energy prices have affected sentiment in the Wall Street session, and most APAC indices have followed suit. However, Japan’s Nikkei 225 index has seen modest gains, which can be attributed to the weaker Yen. Chinese indices continue to be under pressure, despite significant gains from the property sector.


Bank of Canada Rates Decision


The Bank of Canada will be making a rates decision later today, and experts predict that there will be no change.


EUR/USD Technical Analysis


The EUR/USD pair has broken below several support levels. These levels may now act as resistance in the 1.0665 – 1.0670 area. If the pair manages to break above this resistance, it may face further resistance near the prior peaks around 1.0950. There is also potential resistance in the 1.1075 – 1.1095 area, where historical breakpoints exist, and just before the psychological level at 1.1100.


If the pair continues to rise, it may encounter resistance at the breakpoint from the March 2022 high at 1.1185 or the recent peak at 1.1275, which coincides with two historical breakpoints. Above these levels, resistance might be found at the Fibonacci Extension of the move from 1.1095 to 1.0635 at 1.1380. There are also more breakpoints in the 1.1385 – 1.1395 area.


On the downside, support may be found near the previous lows at 1.0635 and 1.0520.