Should we be wary of the euro's direction, given that it remains capped even under QT conditions?

Should we be wary of the euro's direction, given that it remains capped even under quantitative tightening?

11.10.2022

In yesterday’s U.S. trading session, the EUR/USD pair fell slightly as the yield on the 10-year U.S. Treasury note rose to 3.98%, approaching the key 4% threshold. The EUR/USD fell by approximately 70 pips from 0.9752 to 0.9679. Although it briefly rose above the 20-period moving average on the hourly chart, it ultimately closed lower.The pair is testing lower levels during today’s Asian session as well, and with momentum suggesting it may break below yesterday’s low, we will be watching closely to see if the decline continues into the European session.

In contrast to the pound, which is undergoing quantitative easing (QE), the euro—despite plans to continue quantitative tightening (QT)—faced resistance on the upside and fell against the yen. The EUR/JPY pair is currently trading around 141.151 and appears poised to break below the 200-period simple moving average (SMA) on the 4-hour chart without finding support. On the daily chart, the pair is also trading below the 20-period moving average (MA), and with a reversal in the RSI confirmed, traders should remain cautious of a continued decline.

Today, the UK unemployment rate is scheduled for 3:00 PM during Asian trading hours; Turkey’s current account balance is set for 4:00 PM during European trading hours; the US NFIB Small Business Optimism Index is scheduled for 7:00 PM; during US trading hours, remarks by Bank of England Deputy Governor Kanliff are scheduled for 12:00 AM, remarks by US Federal Reserve Bank of Cleveland President Mester are scheduled for 1:00 AM, and a US 3-year Treasury auction is scheduled for 2:00 AM;at 27:00, remarks by SNB Governor Jordan and remarks by BOE Deputy Governor Kanliff; and at 7:00 the following day, remarks by RBA Deputy Governor Ellis. With quantitative tightening (QT) in effect, we should remain cautious about the direction of the euro, which is facing resistance on the upside.