Euro Price Setups after PMI, FX Intervention? EUR/USD, EUR/GBP, EUR/JPY

Euro pricing: EUR/USD, EUR/GBP, EUR/JPY

• EU PMI data shows modest improvement, but demand is holding back growth
• EUR/USD: ECB likely has peaked as government bond yields exceed German bond yields
• Euro/pound: Mean reversion in focus as bullish potential fades
• EUR/JPY: Currency intervention speculation increases yen volatility

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EU PMI data shows gradual improvement, but demand holds back growth

PMI data showed slight improvement across services and manufacturing, but the overall outlook remains uncertain. The eurozone economy may endure contraction in the third quarter after a report showed demand fell at its sharpest rate in three years as rising interest rates and higher prices weighed on consumers. highest.

The 50 mark separates expansion from contraction, and most indicators remain below 50, with the exception of Germany’s services industry, which scored 50.3. Growth in the euro area has been stagnant, with GDP increasing by just 0.1% in the past two quarters.

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EUR/USD: ECB likely to peak as government bond yields exceed government bond yields

As Federal Reserve officials open the door to further interest rate hikes by the end of the year, the theory of “long-lasting highs” is gaining traction, sending U.S. Treasury yields soaring. In contrast, the market expects the ECB to have likely reached a peak in interest rates, reducing the currency’s bullish potential.

Treasury bills appear to come with the term “premium,” meaning that the bondholder demands greater compensation for assuming greater risk. These risks include increased deficit spending, a downgrade of the U.S. Treasury, and the strain on debt service due to rising interest rates.

The Federal Reserve Bank of New York released term premium estimates that have turned positive at the same time as a notable rise in Treasury yields.

Source: Refinitiv, FRB, Author richard snow

EUR/USD has maintained a consistent downtrend and has continued uninterrupted since breaking below the 200-day simple moving average (SMA). However, today’s price action reveals green shoots of a possible pullback, testing the previous support zone that halted the decline in February and March of this year. While the RSI is moving out of oversold territory, the MACD indicator shows a consistent downtrend with a possible correction.

The blue line shows the difference in yield between German government bonds and US government bonds (10-year government bond yield – 10-year government bond yield). This trend is undeniable and puts downward pressure on the pair as long as the mismatch exists.

From a trader’s perspective, the trend is very mature and a pullback is possible, making trend-following strategies less attractive at current levels. A more cautious approach may include looking for opportunities to re-enter the trend at more favorable levels after a slight correction/repulsion.

EUR/USD daily chart

Source: TradingView, Author richard snow

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The weekly chart is reinforcing the downtrend, especially after the previous ascending channel decisively collapsed. Price falls through the previous interesting level on the weekly chart, with the key long-term level at 1.0340 forming the next support level, followed by a 23.6% Fibonacci for the significant decline in 2021-2022 A retracement follows.

EUR/USD weekly chart

Source: TradingView, Author richard snow

EUR/GBP: Bullish potential fades, mean reversal in focus

EUR/GBP rose after the UK released some encouraging inflation data on September 20th. The better-than-expected numbers prompted the market to cut expectations for further interest rate hikes, leaving the pound vulnerable to losses.

The reaction was immediate, with the pair testing the 200 SMA around 0.8700 before consolidating. The 0.8660 zone currently separates the pair from trading back within the horizontal channel that contained most of the price movement in the second half of the year.

The extended top candlestick (yesterday and so far today) suggests that the bears are reluctant to trade on the upside as they push the pair lower. 0.8635 appears as a tripwire for a reversal of the mean and a move deeper into the channel again. A possible MACD crossover adds further interest to the pair’s return to the downside.

EUR/GBP daily chart

Source: TradingView, Author richard snow

EUR/JPY: Intervention speculation increases yen volatility

Volatile movements across the Japanese Yen pair yesterday caused turmoil in the foreign exchange market after the USD/JPY reached $150, a level widely touted as unacceptable by monetary authorities. After USD/JPY reached 150, EUR/JPY fell sharply, but recovered most of the decline in the moments that followed. This is somewhat reminiscent of what happened last September.

Therefore, if the Ministry of Finance and the Bank of Japan cooperated yesterday to intervene in the foreign exchange market, as in September 2022, when prices rose another 4% before the next round, despite their efforts still A period of weak yen may continue. An intervention occurred.

Nevertheless, trading the Yen is a very risky endeavor at this time. Even if the chosen outcome turns out to be correct, it can cause volatile price fluctuations. Frequently reported discomfort regarding the value of the Japanese yen is limiting the upside potential for the yen, with the MACD showing a clear bias towards a downtrend.

The pair has also broken below the consolidation channel, opening the possibility of a sustained decline in the event of direct intervention in the future. Another thing to note is that Japanese officials intervened after Asian markets closed, allowing them to make more money at a time when the yen was less liquid. Yesterday’s volatility event occurred around 3pm in London. Although the price is trading below the lower end of the channel, 153.45 is still the next support level and a possible move through 151.61 is also possible.

EUR/JPY daily chart

Source: TradingView, Author richard snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnow