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EUR / USD falls below 1.2000, as Powell raises US bond yields

  • EUR / USD has fallen sharply in recent trading to retreat below 1.2000 as USD rallies amid rising US yields.
  • A convincing break out of this zone could open the door for a drop to February lows at 1.1950.

The EUR/USD it has fallen sharply in recent trading to retreat below the 1.2000 level, dropping around 0.6% or around 70 pips on the day. The pair sold amid a rally in the US dollar following comments from Federal Reserve Chairman Jerome Powell, whose remarks appeared to disappoint market expectations. Before his comments, the EUR / USD was trading closer to 1.2050. Tuesday’s low of 1.1990 appears to be acting as support, but a break below this area could cause the EUR / USD to drop back to February’s low, just above 1.1950.

The impetus for the US dollar rally has been a strong rally in US government bond yields. 10-year yields, which had been flat the day before Powell’s remarks, are now up about 6 basis points to above 1.53%. 30-year yields are up about 5 basis points to more than 2.30%. As a result of the rally in the USD and US bond yields, stocks are taking a hit, with the S&P 500 now down more than 1% on the day.

Fed Chairman Jerome Powell recently wrapped up an online conversation with Nick Timiraos, WSJ’s chief economics correspondent, at the WSJ Jobs Summit.

As for his comment on the outlook for the US economy and the outlook for interest rates and the Fed’s asset purchase program, Fed Chairman Jerome Powell stuck to the usual dovish script. To summarize Powell’s comments on the economy; Although the outlook has improved, the US economy is still a long way from the Fed’s targets (there is a lot of talk about how the true unemployment rate remains near 10M) and although inflation is expected to pick up as that the economy reopens and due to the effects based on the next few months, Powell does not believe that this constitutes anything more than a temporary increase in inflation given that 1) in recent years deflationary pressures have been stronger than inflationary pressures and 2) inflation expectations remain well anchored at around 2%.

About politics; Given the fact that the Fed will take a long time to reach its targets, Powell still expects rates to stay close to zero for a long time and the Fed will only start raising rates once it has fulfilled its dual mandate fully. Employment and inflation averaged moderately above 2% for a time. On QE, Powell reiterated that the Fed will not reduce asset purchases until “substantial” progress towards the dual mandate has been made.

Technical levels

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