EUR/USD Forecast: Recovery gains momentum as investors reassess Fed's rate outlook

EUR/USD has extended its rebound on renewed dollar weakness.
Investors reassess Fed rate hike expectations in the face of a new coronavirus variant.
US Treasury bond yields are falling sharply amid risk aversion.

Eren Sengezer FXStreet

EUR/USD has gained traction on Friday and looks to build on its recovery gains with the greenback coming under strong selling pressure ahead of the weekend.

Reports suggesting that the current vaccines might be ineffective against the heavily-mutated new coronavirus variant detected in South Africa are forcing investors to reassess the Federal Reserve's policy outlook.

According to the CME Group's FedWatch Tool, markets are now pricing a 34% chance of the Fed leaving its policy rate unchanged by June 2022, compared to 18% on Thursday. Additionally, the 10-year US Treasury bond yield is down more than 7% on a daily basis. The World Health Organization (WHO) said they have detected nearly 100 sequences of the new B.1.1.159 variant and noted that early analysis shows it has "a large number of mutations."

Reflecting the broad-based dollar weakness, the US Dollar Index is falling nearly 0.5% so far on the day.

There won't be any high-tier macroeconomic data releases and investors will keep a close eye on coronavirus headlines. Although the greenback is likely to outperform the risk-sensitive currencies, it could find it difficult to gather strength against the common currency with market participants refraining from pricing the policy divergence between the Fed and the European Central Bank (ECB).

EUR/USD Technical Analysis

There is an obvious bullish shift in EUR/USD's near-term technical outlook. The Relative Strength Index (RSI) indicator advanced beyond 50 for the first time in a week and the pair is holding above the 20-period SMA.

Currently, the pair is testing the 50-period SMA at 1.1280 and additional gains toward 1.1300 (psychological level) could be witnessed. In case buyers manage to flip the latter into support, next resistance aligns at 1.1370 (static level).

On the downside, supports are located at 1.1230 (20-period SMA), 1.1200 (psychological level) and 1.1185 (2021 low).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Crypto Today: Bitcoin holds the 50-day EMA as Ethereum and XRP face structural resistance

Bitcoin gradually ticks up on Friday, trading above $81,000. The Crypto King has recently defended structural support near $80,000, reinforcing the prevailing bullish outlook. Ethereum similarly edges higher above $2,400, while Ripple trades above $1.32 after testing support around $1.30.

The French bond panic is overdone. Here's what the market is misreading

France's 10-year government bond yield has climbed above 5%, reigniting fears of a sovereign debt crisis in the Eurozone. With public debt exceeding €3.5 trillion, persistent budget deficits and a fragmented political landscape, investors are increasingly questioning the French government's ability to stabilize its finances.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.