EUR/USD: The possibility of a break lower to 1.10 during 2022 has increased

Although economists at Rabobank think too long USD may curtail further gains for the greenback, they highlight the possibility of the EUR/USD pair breaking below the 1.10 through 2022. 

Long USD position may inhibit further gains for the greenback in the coming month or so

“Even though we are concerned that long USD position may inhibit further gains for the greenback in the coming month or so, we continue to favour the USD vs. the EUR and the JPY during the course of next year given scope for more hawkish action by the Fed.”

“Risk of further USD pullbacks means that we have held off from revising lower our EUR/USD 1.12 target for now. That said, the possibility of a break lower to 1.10 during the course of next year has increased.”


 
USD/CAD remains depressed near mid-1.2700s, moves little post-US ADP report

The USD/CAD pair remained on the defensive through the early European session, albeit has managed to recover a few pips from the daily swing low, around the 1.2725 region. The pair held steady around mid-1.2700s and had a rather muted reaction to the US ADP report.

Crude oil prices rallied nearly 4% on Wednesday and recovered a major part of the previous day's downfall to the lowest level since August 23. This, in turn, boosted demand for the commodity-linked loonie and prompted fresh selling around the USD/CAD pair amid a subdued US dollar price action.

A sharp turnaround in the global risk sentiment turned out to be a key factor that acted as a headwind for the safe-haven greenback and further contributed to the selling bias surrounding the USD/CAD pair. Investors now seem convinced that the latest COVID-19 variant would not derail the economic recovery.

Further supporting the upbeat market mood were comments by the World Health Organization (WHO) official, saying that some of the early indications are that most Omicron cases are mild. That said, increasing bets for a more aggressive policy tightening by the Fed helped limit any meaningful USD slide.

In fact, the money markets indicate the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by a strong rally in the US Treasury bond yields, which further extended some support to the USD and assisted the USD/CAD pair to attract some buying ahead of the weekly low.


GBP/USD slides back closer to weekly lows, hovers around mid-1.3500s

The GBP/USD pair continued losing ground through the first half of the European session and slipped below mid-1.3500s, back closer to weekly lows in the last hour.

The pair came under some renewed selling pressure on Wednesday and snapped four consecutive days of the winning streak to one-week tops, around mid-1.36000s touched in the previous day. A combination of factors assisted the US dollar to gains strong follow-through traction, which was seen as a key factor that exerted heavy pressure on the GBP/USD pair.

The USD continued drawing support from firming market expectations that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. The markets also seem to have started pricing in the possibility for a Fed rate hike move in 2022 amid worries that the continuous surge in oil/energy prices will stoke inflation.

Apart from this, fragile US-China trade ties, China Evergrande’s debt crisis and a stalemate over the US debt ceiling triggered a fresh wave of the global risk-aversion trade. This, along with a strong move up in the US Treasury bond yields, continued acting as a tailwind for the safe-haven greenback and prompted fresh selling around the GBP/USD pair.

The British pound was further weighed down by renewed tensions between Britain and France over post-Brexit fishing rights. In the latest development, French Finance Minister Bruno Le Maire stated that France will define an action plan on UK and fishing on October 15. Adding to this, the ongoing fuel crisis in the UK further undermined the sterling.

Market participants now look forward to the release of the US ADP report on private-sector employment for some impetus later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the GBP/USD pair.


EUR/USD Price Analysis: Further losses likely below 1.1590

EUR/USD regains some composure and looks to extend the bounce above the 1.1600 mark on a more sustainable fashion.

In the meantime, the inability of spot to move higher in the short-term horizon could trigger some corrective move to, initially, the weekly low at 1.1590 (October 25). A drop beyond this level is seen exposing another weekly low near 1.1570 (October 18), all prior to the 2021 low at 1.1524 (October 12).

In the meantime, the near-term outlook for EUR/USD is seen on the negative side below the key 200-day SMA, today at 1.1911.


GBP/USD: Five factors to continue pushing the cable lower

GBP/USD has dropped to the lowest since January amid higher US yields. Yohay Elam, an Analyst at FXStreet, lays out five reasons for the pound's plunge and explains why there is no end in sight.

Higher US yields

“It took markets a few days to react, but the Federal Reserve's signal of tapering its bond-buying scheme has triggered a sell-off in bonds. The result is higher returns on American debt, pushing the dollar higher.” 

No fuel today

“The British army is on standby to deliver petrol to stations as a shortage of lorry drivers keeps some pumps dry. Transport issues could derail the economy. It will take a few more days to resolve the issue.”

Brexit

“The UK and France are fighting over fish once again. While fishing is a minuscule sector, tensions around it contribute to lack of progress around the Northern Irish protocol. It is also essential to note that the lack of lorry drivers is also Brexit-related. Things will likely get worse before improving.” 

US default? 

“October 18 is the date that the US would hit its debt limit and could potentially miss payments to bondholders. While such a move has little chances, the ongoing row between Democrats and Republicans in Congress is worrying markets.”

Still not oversold

“The Relative Strength Index on the four-hour chart is still above 20, thus outside levels that proved to trigger a bounce in the past. Pound/dollar continues trading below the 50, 100 and 200 Simple Moving Averages and suffers from downside momentum.”


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