US recap: EUR/USD reverses 2022’s downtrend on tamer Fed view

Oct 26 (Reuters) – EUR/USD rose more than 1% on Wednesday, far above 2022’s well-defined downtrend line, after an unexpectedly small Bank of Canada hike that increased doubts about peak Fed rates nL1N31R1B6.

The dollar retreat had already accelerated after USD/CNY tumbled 1.3% amid reports that major state-owned banks had sold in both onshore and offshore markets.

Sterling piled on against the dollar after news the British government delayed its fiscal statement to Nov. 17 from Oct. 31 and remained 1.2% higher after hitting resistance at 1.1638, its 2022 downtrend line, though it was well above the prior October highs and a 50% Fibo hurdle by 1.1500.

USD/JPY fell more than 1% without any Japanese intervention behind the slide, as 2-year yield spreads slipped to their lowest since Oct. 12.

A close below the 21-day moving average at 146.73 and the kijun at 146.12, would focus attention on Friday’s intervention-derived depth at 144.50, and perhaps much lower levels depending on how the ECB, BoJ and Fed meetings over the next week and next Friday’s US employment data stack up.

Currently the Fed is priced to increase rates by 75bps for a fourth consecutive meeting, with 50bp and 25bp hikes favored in December and February and rates topping out at 4.85% by May, down from the recent peak projection above 5%.

The ECB is fully priced to hike by 75bp Thursday, its second such increase, with a total of roughly 215bp of increases for a peak rate by 2.8% in July.

The BoE is also expected to hike by 75bp at its Nov. 3 meeting, down from recent highs above 100bp. The current terminal rate at 4.86% is by the Fed peak, but sterling is being boosted by tumbling gilts yields reflecting recovering confidence in fiscal and monetary policy after recent setbacks.

US durable goods, Q3 GDP, PCE and weekly jobless claims are on tap Thursday.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)