As US Treasury yields rise steadily, the story of combatting inflation is once again in the news. The yields on the carefully watched 2- and 10-year USTs have reached their highest levels in about 15 years, at 4.59% and 4.165%, respectively. Recent remarks by Fed members confirm that the US central bank will increase rates more and for a longer period of time if necessary in the ongoing battle against the US's extreme pricing pressures. In their speeches later in the session, four Fed officials—Harker, Jefferson, Cook, and Bowman—are anticipated to reiterate recent Fed statements.
The most recent version of the CME Fedwatch tool predicts a 92.3% chance of a 75 basis point rate hike at the FOMC meeting on November 2 and an 80% chance of another 75bp hike at the meeting on December 14. By the end of the year, the Fed target rate would be between 4.50% and 4.75%.
The European Central Bank (ECB), which will announce its most recent policy decision the following week, is expected to raise rates by 75 basis points. The ECB is scheduled to raise rates further over the upcoming months, providing the single currency with some support as Europe continues to struggle with headline inflation that is close to double digits.
The EUR/USD daily chart demonstrates how the pair has moved steadily lower, forming an uninterrupted string of lower highs and lower lows, a well-known bearish technical pattern. The most recent lower bottom, which is located at 0.9537, is expected to experience pressure, particularly if US bond yields continue to rise. The low print on October 13 at 0.9632 will provide as immediate support just above this level. Resistance is located at 0.9880, followed by parity, which appears to be challenging to overcome.
According to data from retail traders, 59.27% of traders are net-long, with the long-to-short ratio standing at 1.46 to 1. Traders who are net-long are up 13.92% from yesterday and down 2.06% from the previous week, while those who are net-short are down 13.58% from yesterday and up 9.01% from the previous week.
The fact that traders are net-long signals that the price of the EUR/USD may continue to decline. We normally take a contrarian stance against the attitude of the crowd. While positioning is less net-long than last week, it is less net-long than yesterday. We have a further mixed EUR/USD trading inclination based on the current mood and previous moves.
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