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The EURUSD surges.  ECB crisis tool talk gives pair a boost


EURUSD Breaks Above Wednesday/Thursday Lows

EURUSD rebounded and in the process moved back above Wednesday and Thursday lows between 1.0863 and 1.0873. The price is currently trading at 1.0873, which is just below yesterday’s close at 1.0878. The high price has reached 1.0879 so far.

As discussed in a previous article, a return above the swing zone threatens the seven-day decline seen in EURUSD. Failure to break out – at least in the short term – will now have traders looking to the 1.08633 level for support. If it can hold, one will need to watch yesterday’s break through and move towards other bullish targets.

On the upside, more momentum would turn towards 1.0900, followed by the fall of the 100 hourly MA at 1.0914.

What is the catalyst?

EURUSD’s upward move was consistent with headlines from the ECB on a “crisis tool” to activate if bond yields rise (sounds like quantitative easing to me).

Yes, yields have increased inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this term mounted. Granted, the upside was impacted by early supply chain constraints and now the war in Ukraine, but inflation can breed inflation. Yields are a way for “market” users to slow down inflation and this can come at the expense of growth. Yields across Europe are higher, but that is what is supposed to happen.

In any case, technically speaking, the fall in prices has been halted. The return above the aforementioned swing zone threatens the seven-day decline, but buyers will have more work to do to regain more control. Breaking above 1.0900 and then the 100 hourly MA are the next steps on the upside that would give buyers more confidence.

A return below 1.08633 would conversely muddy the waters ahead of the final hours of trading of the week as traders get jostled.

In other markets, yields fell in the United States:

  • 2-year is at 2.495%, up 3.0 basis points but down from its high yield of 2.546%
  • 10-year is at 2.694%, up 3.4 basis points but down from its high yield of 2.728%

US stocks have moved off their lows, with the Dow Jones and S&P now trading higher. The NASDAQ index is still falling

  • The Dow Industrial Average is now 224 points or 0.65% higher at 34,818.
  • The S&P index is up 7.8 points or 0.17% from 4508. The low price reached 4474.60
  • NASDAQ


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