Euro Holds Ground as US Dollar Faces Headwinds on a Dovish Fed. Higher EUR/USD?

Euro, EUR/USD, US Dollar, Federal Reserve, Gold, Crude Oil, Treasury Yields – Talking Points

• Euro support appears intact for now with a potentially vulnerable US Dollar
• Treasury yields rolled over after recent peaks with the Fed hopeful of a soft landing
• If the Euro is unable to break above resistance, will EUR/USD resume its downtrend?

The Euro has held recent gains with currencies settling into Tuesday’s trade after a busy start to the week as markets look to decipher the implications of a protracted conflict evolving in Israel and Palestine.

Spot gold remains above US$ 1,860 on perceived haven status and an overall weaker US Dollar that is on the backfoot with Treasury yields peeling lower after dovish Fed speak overnight.

Federal Reserve Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan both cited the backing up of long-end Treasury yields as potentially doing the desired tightening that the Fed had been trying to achieve.

Physical Treasury markets re-opened today after a holiday Monday and the 10-year note trading below 4.65% after nudging 4.88% last Friday.

Equities have been buoyed by the prospect of the Fed holding fire on any further hawkishness.

Japan’s Nikkei 225 index rallied over 2% today after returning from a holiday on Monday. Most APAC equity indices are in the green with the exception of mainland China where the CSI 300 index slid around 0.50%.

Equity indices futures are pointing toward a steady start for European and US bourses.

EUR/USD is trading near 1.0560 at the time of going to print while GBP/USD is holding above 1.2200.

Crude oil and natural gas futures remain buoyed on the unfolding Middle East situation with the WTI futures contract near US$ 86 bbl while the Brent contract is a touch above US$ 87.50 bbl.

Several fed speakers will be crossing the wires later today, including Roberto Perli, Raphael Bostic, Christopher Waller, Neill Kashkari and Mary Daly

The ECB’s Francois Villeroy de Galhau will also be making comments today.

The full economic calendar can be viewed here.

EUR/USD TECHNICAL ANALYSIS SNAPSHOT

EUR/USD remains in a descending trend channel despite the recent rally.

Nearby resistance could be at the breakpoint and recent high at 1.0617 ahead of another prior peak at 1.0673 that coincides with the 34-day simple moving average (SMA).

Further up, the 100- and 200-day SMAs may offer resistance near the breakpoint at 1.0830.

On the downside, support might lie near the recent lows of 1.0480 and 1.0440.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter