FX Weekly: Euro Finishes Last, Yen Firm

Euro weakest major, French yield 5.14%, US yields fall to 4.97%: the FX week in review and what matters next week.

FX Weekly: Euro Finishes Last, Yen Firm

The Week in FX: Euro Finishes Last

Key Takeaways

  • The euro is the weakest major currency of the week, the Australian dollar the strongest.
  • US yields have fallen from 5.35 to 4.97 percent since October 7.
  • The Fed, US GDP, PCE and Big Tech earnings follow next week.

EUR/USD closes the week near 1.1205 and remains in a sideways range. Behind the calm chart sits a week with clear losers: according to ActionForex, the euro ends at the bottom of the major-currency rankings, against a backdrop of a tech selloff, a rally in government bonds and fresh worries about France.

Who Won, Who Lost

ActionForex describes an unusual ranking of the majors. The Aussie, the Canadian dollar and the kiwi lead. Alongside the euro, the US dollar and the Swiss franc trail. That is not a clean risk-off pattern, since classic safe-haven currencies only partly benefited. On Thursday the yen gained as technology stocks fell in Asia and Europe. The Kospi lost about 3.5 percent, the Nikkei 2.7 percent.

USD/JPY briefly slid below support at 156.36 but recovered the loss. ActionForex's chart analyst sees the pair as neutral in the short term, with 159.02 as the level for a move higher.

France Weighs, but the Trigger Lies Elsewhere

The euro's lag has a political cause. France's ten-year yield jumped to 5.14 percent on Thursday, the highest since 2002, and the gap to the German Bund widened to about 173 basis points. Add Moody's review on Friday and an unresolved budget dispute. While US Treasuries and Bunds were in demand, French paper was sold, a split that holds the euro area together and pulls it apart at the same time.

For the ECB this sharpens the dilemma. Finanzmarktwelt cites a Bloomberg survey in which economists expect a hike of the deposit rate to 2.75 percent in December and a long pause afterward. Markets price three steps within twelve months. Euro-area inflation most recently stood at 3.8 percent, partly because Brent trades above $110. Little offers support: Germany's purchasing managers' index fell to 52.8 in October, its lowest in two months.

The Bond Market Sets the Tone

More important than any single currency this week was the yield. According to Finanzmarktwelt, the yield on ten-year US Treasuries dropped by almost 0.19 percentage points, the biggest one-day move down since March 2023. Bunds yield 3.34 percent, down from 3.65 percent at the end of September. Investors are swapping tech stocks for government bonds even though oil prices are driving inflation and should be pushing yields up.

That is exactly the tension for currencies in the coming days: the Fed decision, US GDP, PCE inflation and Big Tech earnings all land together. Whether yields react more to inflation worries or to fading risk appetite will decide the next direction, according to ActionForex.

What momentum says

The momentum signals a mixed picture for EUR/USD: on the one-hour and daily timeframes the state is neutral, on the four-hour and weekly timeframes bearish. The price stood at 1.1205 when the snapshot was taken.

Scenarios

ActionForex sees the risk skewed to the downside as long as 1.1276 holds as resistance. If EUR/USD falls below 1.1111, the Fibonacci level at 1.0904 comes into view. A clear break above 1.1276, by contrast, would make a rebound toward the 55-day average at 1.1373 conceivable.