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BUZZ-COMMENT-US recap: EUR/USD advances amid dollar's data-driven selloff

Credit: REUTERS/Jason Lee

The dollar fell on Tuesday, extending its recent reversal away from this month's overbought peaks versus the euro, yen and sterling after unexpectedly weak U.S. data and further convergence between Fed and ECB rate-hiking paths.

May 24 (Reuters) - The dollar fell on Tuesday, extending its recent reversal away from this month's overbought peaks versus the euro, yen and sterling after unexpectedly weak U.S. data and further convergence between Fed and ECB rate-hiking paths.

The haven yen benefited from risk aversion and falling rates while the slide in the dollar index to a one-month low was mitigated by sterling's drop following a dive in UK services PMI.

European Central Bank President Christine Lagarde boosted the euro by saying she expected the ECB's deposit rate at zero or "slightly above" by the end of September .

Euro zone May PMI slowed to 54.9 but still outperformed U.S. PMI at 53.8 . A 16.6% plunge in U.S. new home sales to a two-year low and further below-forecast regional Fed data sharpened the dollar-negative contrast.

EUR/USD gained 0.38% and neared the 50% Fibo of its March 31 to May 13 plunge at 1.0767 and other nearby hurdles , in a rise powered by rebounding two-year bund-Treasury yield spreads that are 43bps above this year's closing low from April.

Next Friday's U.S. jobs report is likely to be decisive for the EUR/USD's recovery from this year's 1.0349 nadir just above 2017's long-term low at 1.0340. Technically, the weekly tenkan and kijun at 1.0767 and 1.0922 are pivotal, particularly the kijun that prices have been below since June 2021.

Risk and rates-sensitive USD/JPY fell 0.9% as Treasury yields and stocks fell and as the haven yen rallied on the crosses.

USD/JPY is particularly susceptible to selling following its incredibly overbought advance earlier this year and hefty speculative long positioning .

So far it's held just above the weekly tenkan and 50% Fibo support at 126.32, though a further drop to the kijun and a broader 50% Fibo at 121.94 is plausible if U.S. data continue to suggest less Fed hiking is needed to dim demand and inflation.

Sterling slid 0.5% after the poor PMI report and prices ran into the pivotal 30-day moving average at the 1.25995 high and 1.2600 figure resistance. The selloff was slowed by CBI retail sales data defying expectations for a further slump and the broader dollar weakness.

The Australian dollar and most other high-beta or China reliant currencies fell against the dollar and yen amid the day's risk-off flows and lingering concerns about China's pandemic normalization path and the repercussions from Russia's war against Ukraine .

Wednesday's FOMC minutes will get the once-over, but there's been plenty of feedback from policymakers since then, and the focus now is more on whether the Fed will exceed two more 50bp hikes before backing off in September. On that score, Thursday's jobless claims, GDP revisions, PCE and pending home sales may add more value.

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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)

((Randolph.donney@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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