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Global assets "big plunge"! The U.S. dollar and U.S. debt are the strongest, but the euro's technical situation has turned red.
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Hello everyone, today XM Forex will bring you "[XM Forex]: Global assets "big dive"! The U.S. dollar and U.S. debt are the only strong ones, and the technical aspect of the euro has turned red." Hope this helps you! The original content is as follows:
During Asia-Europe time on Tuesday, the EURUSD was trading around 1.1562. The euro-dollar exchange rate has always been controlled below the 1.1600 mark, highlighting the strong short sentiment in the foreign exchange market. Global risk appetite has deteriorated sharply since the US president threatened to impose 100% tariffs on Chinese goods starting from November 1. The euro briefly rebounded after Trump softened his rhetoric, but the relief was fleeting. The euro failed to hold 1.1600 on Monday, falling 0.44%. Risk aversion has revived demand for the dollar, while continued political turmoil in France has put pressure on the euro.
French internal affairs have added to the uncertainty, as opposition forces advocate early elections
Market sentiment remains defensive after President Emmanuel Macron decided to appoint Sebastian Le Peni for a second term as prime minister - a move intended to stabilize the divided French government before the upcoming no-confidence vote.
However, the reorganized cabinet immediately encountered resistance from the opposition camp led by Marine Le Pen and Eric Ciotti. Both major opposition forces advocated holding early elections.
Investors are worried that if France falls into another round of political deadlock, it will not only delay the advancement of fiscal reforms, but will also significantly drag down the already fragile recovery process of the euro zone.
The yield on French 10-year government bonds climbed to 3.11%, and the yield difference with German government bonds widened to a 13-month high. This trend intuitively reflects the rise in sovereign credit risk premiums in the euro zone, which has suppressed the euro.
The divergence of policy paths restricts the rebound of the euro against the US dollar
The U.S. dollar index stabilized near the 99.00 mark, hovering near the day's intraday high of 99.35, in the context of geopolitical fluctuations in tariffs, demand for the U.S. dollar as the least volatile safe haven has been maintained. Although the dollar's gains have paused, the cost of shorting the dollar remains high thanks to the fact that U.S. interest rates remain the highest among G10 economies.
Under the leadership of Christine Lagarde, the European Central Bank remains cautious. The previously released minutes of the September meeting showed that there were differences within the bank on the outlook for inflation. The management www.xmmen.committee defined the risk of inflation as "overall balanced but biased to the downside." This means that if subsequent economic data weakens further, the possibility of launching a new round of interest rate cuts cannot be ruled out.
Recently, Germany's industrial output fell by 1.4% month-on-month, the largest monthly decline since February; at the same time, Germany's ZEW Economic Sentiment Index fell to -17.8. Such data highlight that corporate confidence is still in a deep downturn. Faced with the U.S. dollar's yield advantage, it is difficult for the euro to achieve any sustained rebound based on current fundamentals.
The rising expectations of U.S. interest rate cuts have not changed the strength of the U.S. dollar
At the same time, the University of Michigan consumer confidence index fell slightly to 55.0 in early October, down from 55.1 last month. Although the index retreated slightly, the resilience of the consumer sector still provided support for safe-haven buying of the US dollar. Inflation expectations fell simultaneously, with the one-year inflation expectation falling to 4.6% and the five-year inflation expectation falling to 3.7%. This trend further confirms the market logic that "the Federal Reserve can implement gradual interest rate cuts without triggering a significant depreciation of the U.S. dollar."
The U.S. government shutdown, now in its third week, has further exacerbated market uncertainty. The government shutdown has delayed the release of key macroeconomic data, forcing markets to trade in the absence of information.
In the absence of the latest inflation and employment data, traders have to rely on forward guidance from policymakers. The market generally expects that the Federal Reserve will cut interest rates by 25 basis points at the October 29 meeting. The probability of an interest rate cut implied by the futures market is as high as 98.34%, and another interest rate cut is expected to be carried out in December. Although this expectation has restrained the upside of the US dollar, at the same time, given that the economic growth momentum of the Eurozone is significantly weaker than that of the United States, the EURUSD exchange rate is still anchored below 1.1600.
The reversal in market risk appetite is good for the U.S. dollar and U.S. bonds
As a trigger, the threat of U.S. tariffs caused Asian markets to fall broadly on Tuesday, with gold, silver, LME copper, and U.S. crude oil all falling sharply.
The safe-haven properties of the U.S. dollar and U.S. bonds were demonstrated, with the 10-year U.S. bond yield rising 3.7 basis points (U.S. bond yields are inversely proportional to U.S. bond prices), or 0.91% to 4.015.
Originally, gold is also a good safe haven. However, due to the recent continuous surge in gold prices, spot gold, as a tradable financial product, has begun to dominate in terms of its financial attributes affected by risk preferences. During the Asian session, it also fell following the contraction of market risk preferences. At the same time, the VIX gapped up by 16.7% after opening, which will benefit the development of the US dollar and US bonds.
Technical Analysis:
After the euro fell below 1.1600 against the U.S. dollar, the subsequent rebound was www.xmmen.completely constrained by this price. It has now fallen below the upward trend line. The current support is at the 1.1500 integer mark, which is also the 50% percentile of the euro's big positive line on August 1. At the same time, the upward pressure is in the fan-shaped range of 1.1580-1.1600.
Affected by the weakness of the Euro Index, the U.S. Dollar Index remains strong. As analyzed in previous articles, the U.S. Dollar Index has reached the orange neckline and has resolved the crisis of the head-and-shoulders pattern. It may break through the important mark near 99.50. At the same time, this point is an important sign that the U.S. Dollar Index is fully bullish, and it also marks that the market continues to increase pricing of risks.
The above content is all about "[XM Foreign Exchange]: Global assets "big dive"! The U.S. dollar and U.S. debt are the strongest, and the euro's technical situation has turned red." It was carefully www.xmmen.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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