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EUR/USD hovers near 4-month low as dollar’s yield advantage increases

H.S. Borji
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EUR/USD hovers near 4-month low as dollar’s yield advantage increases

The EURUSD edged closer to a four-month low Wednesday, as strong US nonfarm payrolls data and hawkish comments from a Federal Reserve official continued to widen the dollar’s yield advantage over the euro.

The EURUSD touched an intraday low of 1.3522, as demand for the US dollar remained elevated ahead of key data. The pair later consolidated at 1.3531, declining 0.11 percent. Initial support is likely found at 1.3439 and resistance at 1.3589.

The pair is trading below its 20-day average of 1.3651, where it faces negative bias.

Meanwhile, the US dollar index was relatively unchanged at 80.77. The gauge has advanced 0.15 percent since June 5.

Wednesday marked the third consecutive day of declines for the euro. The common currency rebounded slightly last Thursday after the European Central Bank announced plans to cut the borrowing rate to 0.15 percent and introduce a negative deposit rate. Since then, widening yield differentials between the US dollar and euro have kept the pair under pressure.

According to Thomson Reuters, the yield gap between two-year US Treasury yields and two-year German government bond yields is the biggest in seven years.

The EURUSD has lost nearly 1 percent since June 6. The EBC’s latest policy venture promises to weaken the common currency further over the short-term.

US Treasury yields received a boost after the Labor Department said US nonfarm payrolls rose 217,000 in May, following a revised gain of 282,000 the prior month. Yields were also supported by hawkish comments from Federal Reserve Bank of St. Louis President James Bullard, who said on Monday the central bank could raise interest rates earlier than expected if economic recovery continues to deepen.

Bullard suggested the Fed is eying unemployment, GDP and interest rates to determine appropriate policy measures.

In economic data, the US government on Thursday will report on business inventories and retail sales. Economists expect retail sales to have expanded 0.6 percent in May, following a gain of 0.1 percent the prior month.

The euro edged lower against its European counterpart, the British pound, which posted strong employment figures today. The EURGBP declined 0.35 percent to 80.56. The pair faces immediate support at 0.8046 and resistance at 0.8101.

The common currency fell to a fresh 2014 low against the Australian dollar. The EURAUD declined 0.25 percent to 1.4419. The pair faces initial support at 1.4411 and resistance at 1.4524.

The Aussie was supported over the weekend by stronger than forecast Chinese trade data and a robust Japanese GDP report. The Aussie was further supported Wednesday by a slight rise in Australian consumer confidence. The Westpac consumer confidence index advanced from 92.9 to 93.2 in May.

The Australian Bureau of Statistics will report on the country’s employment situation Thursday.

Investors on Thursday will also be monitoring the European Central Bank’s monthly report, which contains a detailed description of the prevailing economic situation in the Eurozone. The European Commission will also provide an estimate of industrial production for the month of April.

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