EUR/USD Tumbles Towards Yearly Low Amid Rising USD Strength
The EUR/USD pair has been on a downward trend since the Federal Reserve's rate hike, losing over 300 pips in just one week and nearing its yearly low of June.
This move is part of a broader trend of USD strength, with the DXY index continuing to rally over the past three weeks. The Fed's decision to raise rates was largely expected, but the tone of the statement has caught markets off guard, increasing the probability of two more rate hikes by the end of the year.
The rise in Treasury yields is also contributing to the decline of EUR/USD, as investors become less confident in holding duration due to the perceived lack of seriousness from the Fed in its inflation fight. The relationship between bond markets and currency markets is complex, with correlation coefficients showing a far less consistent relationship than often assumed.
The RSI indicator has just entered oversold territory for the first time since June, which could signal a potential mean-reversion trend. While not a reliable timing indicator, RSI can provide valuable context on market extremes and potential inflection points.