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Euro rises vs dollar after ECB hikes faster than flagged

“Fall seven times, stand up eight.” — Japanese Proverb 

 

 

HEADLINES

 

 

  • Euro rises vs dollar after ECB hikes faster than flagged
  • Gold bounces back as dollar slips, economic risks grow
  • Oil slumps on gasoline stockpiles, rate hikes and resuming supply
  • S&P 500, Nasdaq ride higher on Tesla gains
  • 10-year Treasury yield ticks below 3%
  • EUR/USD remains fundamentally overvalued – Danske Bank
  • GBPJPY Near Term: Upside favored

 

 

Euro rises vs dollar after ECB hikes faster than flagged

 

 

The euro jumped against the U.S. dollar before paring gains in a choppy session on Thursday, after the European Central Bank (ECB) delivered a 50 basis point rate hike to tame inflation in its first rate increase since 2011.

The ECB raised its benchmark deposit rate to 0%, breaking its own guidance for a 25 basis point move as it joined global peers in jacking up borrowing costs.

The euro was 0.09% higher at $1.019 after rising as high as 1.0279, its strongest in nearly two weeks.

 

 

COMMODITIES

 

 

Gold bounces back as dollar slips, economic risks grow

 

 

Gold bounced off a one-year low on Thursday after gaining more than 1% as the dollar eased and persistent economic concerns boosted bullion's safe-haven appeal.

Spot gold was up 1% at $1,712.61 per ounce by 1636 GMT, after hitting its lowest since March 2021 at $1,680.25.

U.S. gold futures rose 0.6% to $1,711.00.

The dollar retreated, making gold more attractive for overseas buyers.

 

 

ENERGY

 

 

Oil slumps on gasoline stockpiles, rate hikes and resuming supply

 

 

Oil prices were down about $3 a barrel on Thursday on higher U.S. gasoline stockpiles and after a European Central Bank (ECB) rate hike stoked demand worries, while returning oil supply from Libya and the resumption of Russia's gas flows to Europe eased supply concerns.

U.S. gasoline futures fell 15 cents, or 4.5%, to $3.13 a gallon following a jump of 3.5 million barrels of the commodity in storage last week, U.S. government data showed on Wednesday, far exceeding analyst forecasts.

Oil futures trading volumes have also been thin and prices volatile as traders attempt to square weaker energy demand with tighter supply resulting from the loss of Russian barrels after the country's invasion of Ukraine.

 

STOCKS

 

 

S&P 500, Nasdaq ride higher on Tesla gains

 

 

The Nasdaq and the S&P 500 rose on Thursday as gains in electric automaker Tesla following its strong quarterly results helped offset a slide in telecom and energy shares.

Tesla (TSLA.O) surged 9.3%, while telecom shares tumbled after AT&T Inc (T.N) cut its cash flow forecast saying some subscribers were delaying bill payments and energy stocks slipped on weak crude prices.

Tesla's profit benefited from price increases for its cars and helped offset production challenges. Upbeat reports from the carmaker and streaming giant Netflix Inc (NFLX.O) have boosted megacap growth stocks that have been under pressure from rising interest rates.

 

 

10-year Treasury yield ticks below 3%

 

 

The yield on the 2-year note retreated to 3.154%, but remained above the 10-year, continuing the inversion of the closely-watched 2-year/10-year yield curve.

Yield-curve inversions — when shorter-term government bonds have higher yields than longer-term ones despite carrying lower risk — are often viewed by markets as signs that a recession is imminent.

Markets are attempting to gauge whether the Federal Reserve will hike interest rates by 75 basis points or the more aggressive 100 basis points at its policy meeting next week, as it looks to rein in sky-high inflation.

 

 

ANALYSIS

 

 

EUR/USD remains fundamentally overvalued – Danske Bank 

 

 

“EUR/USD initially rallied close to 1.03 upon announcement before (paradoxically) ending the session below pre-ECB levels. In our view, this highlights one of our long-held views: currencies should primarily be treated as a play on the relative attractiveness of asset markets and only secondly as a play on relative rates. Higher shortened EUR rates on balance improve the carry attractiveness of investing in the single currency.”

“The larger-than-expected ECB rate hike and the signal of more frontloaded tightening also skew European asset return distributions to the left. This makes EUR-denominated assets less attractive. The lack of convincing details on the TPI programme highlights how the ECB cannot have its cake and eat it, in the sense that the price of tightening policy across the Eurozone requires a relatively tighter stance for the economies with the lowest r*s; Italy being the case in point. In turn, this challenges the investment outlook for the EUR that still suffers heavily on a relative terms of trade and cost-adjusted-productivity basis vis-à-vis the USD.”

“In our view, EUR/USD remains fundamentally overvalued. Hence, at this stage, we still like to sell ECB-induced EUR rallies and still pencil in EUR/USD firmly settling below parity over the coming quarters.”

 

 

CHART

 

 

GBPJPY Near Term: Upside favored

 

 

Technical View: Long position above 165.05. Target 166.73. Conversely, break below 165.05, to open 164.29.

Comments: The pair remains supported. Further advance favored.

Source: Trading Central 

 

 

CALENDAR

 

 

*Times in GMT

Source: FX Street Economic Calendar

 

Footnotes
https://www.reuters.com/markets/europe/euro-braces-ecb-hike-russian-gas-restart-yen-eyes-boj-2022-07-21/
https://www.reuters.com/markets/europe/gold-drops-near-one-year-low-rate-hike-fears-loom-2022-07-21/
https://www.reuters.com/business/energy/oil-prices-edge-lower-demand-concerns-outweigh-tight-supply-2022-07-21/
https://www.reuters.com/markets/europe/nasdaq-futures-fight-stay-positive-with-upbeat-tesla-results-2022-07-21/
https://www.cnbc.com/2022/07/21/us-treasury-yields-nudge-higher-as-traders-assess-growth-outlook.html
https://www.fxstreet.com/news/eur-usd-remains-fundamentally-overvalued-danske-bank-202207211631