Daily Market Recap – EURUSD Euro tries to rebound as US rates fall

The EURUSD has been on the rise since yesterday, reaching a 3-week high of around $1.1650. The euro is being supported in the short term by the general decline in nominal and real bond yields in the US.

Long rates have accelerated their decline, with the US 30-year yield losing nearly 20 basis points since the beginning of last week, while short rates had a down session on Monday, with the 2-year yield, which is particularly correlated to Fed rate expectations, losing nearly 3 bps to 0.4% due to disappointing economic data in China and the US.

Obviously, the dollar has been at a disadvantage in this context while other major currencies such as the euro and the Australian dollar are benefiting greatly. The next economic data will be particularly important in this context of the slowing global economy. Flash PMIs for October, released later this week, will provide an advanced picture of the world's major economies. Weekly jobless claims data should also be particularly watched in this context.

From a technical perspective, the rebound in the EURUSD has formed an “inverted head and shoulders” bullish reversal pattern, which suggests a continuation of the rebound in the near term. The EURUSD could reach $1.1730, the theoretical target of the chartist pattern.

Nevertheless, the fundamental outlook remains bearish. Indeed, although the chartist pattern is a reversal pattern, it still seems very early to consider a major bullish reversal in the EURUSD given the strong fundamentals in favor of the dollar, namely the prospects of a faster normalization of monetary policy by the Fed as opposed to other major central banks such as the ECB and the BoJ.

 (Chart Source: Tradingview 19.10.2021)

In addition, it should be noted that institutional speculators (hedge funds and managers) are increasingly buying the dollar according to the latest CFTC Commitment of Traders data.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.