Debt market collapse strengthens the U.S. dollar

04 October 2023 169
Debt market collapse strengthens the U.S. dollar

The EURUSD currency pair is accelerating its downward movement, breaking the lower limit of the downtrend. The global markets keep moving away from risks to safe assets, which includes the U.S. dollar.

The American currency and bond yields strengthened due to the U.S. labor market data. An unexpected growth in the number of job openings in August highlights stable labor demand, analysts at NAB Resources said.

U.S. Treasury Secretary Janet Yellen said on Tuesday she is highly optimistic about the economic outlook. Inflation will decline in the short term and the labor market is likely to remain "extremely strong".

Fed officials consider the rising yields on long-term U.S. Treasury bonds as evidence of the effectiveness of tight monetary policy. In their opinion, these dynamics may indicate the absence of greater risks for the economy. The U.S. 10-year bond yield hit 16-year highs.

The high interest returns in the U.S. debt market are attracting more and more investors, so they are choosing the American currency for savings.

FRB Atlanta President Raphael Bostic said the Fed should keep interest rates higher for a prolonged period of time. This is necessary to bring inflation back to the 2% target.

According to the policymaker's expectations, the first rate cut will be appropriate closer to the end of 2024.

Forecasts for the borrowing rate dynamics are tightening after the September meeting. Markets are adjusting to the Fed's comment that core inflation will remain high for longer than previously expected.

Comments like these have been creating uneasiness in the market for weeks now. This anxiety has intensified in recent trading days, causing outflows from all currencies into the U.S. dollar.

According to the technical analysis, the EURUSD currency pair broke through the downtrend. The situation with the fall of the debt market is escalating, so another wave of decline in the euro against the U.S. dollar should be expected. The downside target will be the 0.5 Fibonacci level from the whole wave of the European currency growth, starting from September 2022. This corresponds to the price of 1.041. A Stop loss will be set at the level of 1.05. The price reversal may occur in case of their return to the downtrend.

EURUSD is likely to decline:

Take profit – 1.041

Stop-loss – 1.050

This content is for informational purposes only and is not intended to be investing advice.

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