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Euro and sterling recover against the dollar, while USD/JPY holds near ¥145.00

A short-term recovery for the euro and pound appears to be underway against the dollar.

EUR/USD rises after hitting fresh 20-year lows

Yesterday saw the EUR/USD make a new milestone, touching fresh 20-year lows. The pair remains hobbled by the rush to the US dollar, which has been driven by the Federal Reserve's (Fed) more aggressive pace of tightening compared to the European Central Bank (ECB) and the better economic outlook in the US. In addition, worries about further EU tensions were stoked with the election of the new Italian PM, putting further pressure on the euro.

Selling the euro has been one of the big trades of the year, and while the bearish outlook is firmly in place, the yawning gulf between the price and the 50-day simple moving average (SMA) currently $1.0058 points towards a potential recovery in the short-term. Nonetheless, further downside targets $0.9698 and then $0.9593, and then on to the September 2001 high at $0.9331.

GBP/USD edges back to $1.08

As for GBP/USD, Monday’s rapid fall propelled the current moves in sterling to the front pages of international financial news, as thin trading in the Asia session drove the pound to its lowest level since 1971 against the US dollar.

For now the pound has recovered, though the atmosphere remains febrile. So far, the Bank of England has not made any moves to raise rates again, merely saying it will not hesitate to act if necessary. Additional upside would target $1.1411, and then on towards the 50-day SMA (currently $1.076). This would mark an impressive rebound from the lows, but still leave the downtrend intact.

USD/JPY hovers below ¥145.00

USD/JPY has not really halted its advance despite Japan’s intervention last week. Overall, the stronger dollar continues to make headway against the yen thanks to the wide divergence in central bank policy. The pair finds itself knocking on the door of ¥145.00 again, the level that has acted as resistance during September. However, it seems like it will only be a matter of time before we see a close above this level. This then reignites the uptrend and creates a fresh higher high.

So far there is a little sign of a downward move that might prompt a reversal, though the 50-day SMA at ¥138.39 might be the first target in any such retracement.


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