Market news

25 January 2023

EUR/USD looks for a decisive cross above 1.0900 amid a subdued USD Index

  • EUR/USD is getting prepared for shifting the auction profile above 1.0900 as USD Index has turned subdued.
  • The ECB may hike interest rates further by 50 bps and may not reach the terminal rate by the end of summer.
  • Uncertainty over the US GDP data has supported US yields to rebound to near 3.47%.

The EUR/USD pair has refreshed its day’s high minutely above the round-level resistance of 1.0900 and is aiming to shift the auction profile above the same. The major currency pair has sharply moved higher after sensing a responsive buying action from the critical support of 1.0840. The Euro has gained significant buying interest as the odds of an extreme policy tightening by the European Central Bank (ECB) ahead are soaring dramatically.

The US Dollar Index (DXY) is continuously facing pressure from the 101.50 resistance after surrendering the same as the street is expecting a further slowdown in the pace of interest rate hiking by the Federal Reserve (Fed). Meanwhile, the return generated by US Treasury bonds has rebounded firmly. The 10-year US Treasury yields is near 3.47%, at the press time, and is looking to add gains further ahead of the release of the United States Gross Domestic Product (GDP) data.

S&P500 futures are looking to place foot after a sell-off led by growing uncertainty as earnings season is triggering volatility. NYSE technical glitch and missed earnings by tech-giant Microsoft are weighing on the US equities.

The odds of a bigger interest rate hike by the ECB are escalating sharply. ECB policymaker Gediminas Simkus reiterated on Tuesday that the ECB should continue with 50 basis points (bps) rate hikes amid growing wage pressures, as reported by Bloomberg. He has trimmed the expectations of reaching to the terminal rate by the end of summer citing that strong core inflation shows that their battle against inflation is not over yet.

Regarding Euro’s future, economists at CIBC Capital Markets cited that improving macro backdrop and continued policy tightening from the ECB portend Euro strength in 2023.

 

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