Currencies

The pair got a boost on Wednesday from poor US jobs data, but slides today after Australian data, which showed that inflation decelerated further in July

USDOLLAR short-term analysis.

The pair tries to stop its six-week losing streak and defend the 200 Days EMA, but key upcoming data points can determine the next leg of the move

The US 10-year yield is trading near 4.25%, at levels last seen at the end of 2022. The underlying driver is a strong US economy and the sense that the Fed will leave rates “higher for longer.” The strong US-10 year is having an impact on the spread between the US and Canadian 10-year bonds.

The pair maintains its upside bias around the September 2022 interventions levels, after the Jackson Hole symposium speeches, awaiting key US economic data later in the week

Fed Chair Powell’s delivery at Jackson Hole had a hawkishness to it. He said that “although inflation has moved down from its peak…it remains too high.” This comes after the Fed’s 11 rate hikes since the beginning of 2022, which has the target range currently at 5.25%-5.5%. At face value, this seems restrictive, however labour markets are still tight, and GDP is still growing at a fair pace.

Watch today’s US Open for insights on the blowout results of AI pioneer Nvidia, poor EZ &UK PMIs and monetary policy outlook ahead of the Fed’s Jackson Hole Symposium

The pair is subdued today as markets await Friday’s speeches by Fed’s Powell and ECB’s Lagarde at Jackson Hole Symposium, amidst uncertain monetary policy outlook

Constrained economic activity in the Euro Area is negatively impacting the EURUSD and influencing ECB policy. As such, the currency pair is sensitive to economic releases. Whilst the central bank has inflation foremost on its mind, the level of Euro Area slowdown cannot be ignored. Flash PMIs that were released today continue to indicate a challenging environment, implying contraction in both the manufacturing and services sectors.

The 10-year real yield and dollar were showing signs of moderation earlier today. However, both instruments’ trend-following indicators have now crossed up.

The 2-year yield serves as a good general proxy for monetary policy direction. The top chart shows the German 2-year yield, representing European monetary policy, and the chart underneath is the US 2-year yield. Since mid-July, the German 2-year has been trending down and the US 2-year has been trending up.