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EUR/USD drops towards 0.9800 as market’s anxiety propels DXY, focus on ECB, US GDP

  • EUR/USD stays depressed while extending the pullback from two-week top.
  • Japan’s alleged intervention, Russian nuclear threat and fears emanating from China challenge the previous risk-on mood.
  • Yields remain under pressure amid chatters over easy Fed rate hike in December.
  • ECB is up for 75 bps move but talks over QT will be more important to please buyers.

EUR/USD holds lower grounds near 0.9840 while keeping the week-start pullback from a fortnight top during early Monday. In doing so, the major currency pair prints the first daily loss in three while paring the previous weekly gains amid mixed sentiment and volatile markets.

The chatters surrounding Japan’s meddling in the market to defend the yen appeared to have triggered the US dollar’s latest rebound. Elsewhere, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war, which in turn should please the EUR/USD sellers.

It should be noted that the latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have drowned the EUR/USD prices.

The greenback dropped heavily on Friday while amplifying the first weekly negative in three as the hawkish Fed bets retreat after mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Even so, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.17%, extending Friday’s losses from the 14-year high. That said, the US equities posted the largest weekly gains in four months in the latest amid previously receding fears of the Fed’s aggressive rate hike.

Looking forward, preliminary readings of German, Eurozone and US PMIs for October will join the aforementioned risk catalysts to entertain EUR/USD bears. However, all eyes will be on Thursday’s monetary policy meeting of the European Central Bank (ECB) as the decision-makers have been hawkish of late, which in turn could help the pair buyers to regain control in case of the Quantitative Tightening (QT) announcement.

Technical analysis

EUR/USD reverses from the 50-DMA hurdle, around 0.9900 by the press time, but needs to conquer the previous resistance line from September 12, around 0.9830, to convince sellers.