Bears enter the EUR/USD market as the US currency rises from the dead

EUR/USD is trading at a premium in Tokyo due to a stronger US dollar that has been gaining ground in the second half of the week. Continual political upheaval in the United Kingdom and hawkish monetary policy in the United States have dampened investor sentiment. The euro is currently trading at 0.9765 against the dollar, which has rebounded from a two-week low.

The benchmark 10-year Treasury yields soared to 14-year highs, while the dollar reached another 32-year high versus the yen, reaching the 150 level at which the Bank of Japan and Ministry of Finance may intervene, according to some traders. Overall, the markets are jittery, which is boosting demand for the safe-haven U.S. dollar as traders anticipate a 75-basis-point rate hike by the Federal Reserve on November 1 and 2, a week before the Fed's blackout period. In addition, a further 50 to 75 basis point increase is predicted for December.

"Risk sentiment deteriorated overnight. As the focus returned to the global inflation backdrop and the aggressive rate hikes that will be required to tame an increasingly persistent inflation pulse, analysts at ANZ Bank stated that the market's initial relief at the UK's decision to repeal the majority of their mini-budget was replaced with anxiety. In this regard, the outlook for the British economy remains uncertain, which could steal some of the limelight from the eurozone, which has dominated market attention and negative feedback loops for the most of 2022. The euro reached a high of 0.9280 near the end of September and remains in bullish territory as long as it remains above 0.8600. "How the Eurozone fares this winter will be a major factor in determining whether the EUR can gain momentum against the GBP in the coming months," Rabobank analysts said.

"We have been bearish on GBP for many months, and while there has been a lot of negative news recently, there is still too much uncertainty in the UK's economic and political outlooks for us to become bullish on GBP. A few days ago, our 3-month projection of 1.06 appeared a little more distant. However, we have not yet seen sufficient good news to adjust this upward.

Domestically, the European Union released the second estimate of the September Consumer Price Index, which was revised downward to 9.9% YoY, just below the first estimate of 10%. The core rate of inflation was verified to be 4.8%.

In the meantime, the euro net long positions declined after reaching their highest levels since early June the week prior. "While ECB statements have increased the likelihood of additional rate hikes in the coming months, concerns are growing about the impact of rising energy costs on the economy (and in particular the strain on Germany's industrial sector)," Rabobank analysts added.