The euro loses ground against the US dollar
EUR/USD is currently trying to settle below support at 1.1200 as the US Dollar gains ground against a large basket of currencies.
The US Dollar Index is testing the resistance level at 96.70. If this test passes, the US Dollar Index will head towards the 97 level which will be bearish for the EUR/USD.
Recent comments from Fed Chairman Jerome Powell indicated that the Fed is ready to hike rates aggressively to fight inflation. Additionally, the Fed is ready to reduce the size of its balance sheet, which may push Treasury yields higher.
Currently, the yield on 2-year Treasury bills is trying to settle above the 1.20% level. Just a few days ago, the yield on 2-year Treasury bills was close to the 1.00% level. Higher yields provided significant support for the US Dollar, which managed to gain strong bullish momentum. If yields continue to rise, the US currency will get more support.
Forex traders will likely remain focused on the Fed’s policy outlook in upcoming trading sessions. The Fed is the main mover in the markets right now, and the US Dollar has a good chance of advancing in this environment.
EUR/USD is currently testing the support level at 1.1200. If this test is successful, the EUR/USD will move towards the next support which is at 1.1170.
A move below support at 1.1170 will open the way for a test of support at 1.1150. If the EUR/USD drops below this level, it will head towards the next support level at 1.1120.
On the upside, the previous support at 1.1230 will serve as the first level of resistance for EUR/USD. If EUR/USD manages to break above this level, it will head towards the next resistance at 1.1270. A successful test of resistance at 1.1270 will push EUR/USD towards resistance at 1.1300.
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