EUR/USD Tumbles Towards Yearly Low as Daily RSI Goes Oversold

The EUR/USD pair has plummeted by over 300 pips since the Fed's rate hike, nearing a re-test of its yearly low set in June. The daily RSI indicator has gone into oversold territory for the first time since that low, suggesting potential mean reversion.

This move is largely attributed to the strong rally in DXY over the past three weeks, with the Fed's rate decision playing a significant role. However, the tone from the Fed towards another hike has contributed to investors' perceptions of a weaker US economy and subsequent decrease in Treasury yields.

The relationship between bond markets and currencies is often misunderstood; while weakness in bonds can be tied to currency weakness, it's not a consistent correlation. The EUR/USD pair's value is determined by its relationship with the US dollar, which has been relatively consistent over the past 15 months despite constant pushing from the Trump administration.

The RSI indicator provides context and highlights market extremes, but it's essential to consider that it's a lagging indicator. A crossover above the 30-level on daily RSI would suggest a potential shift in market momentum, possibly leading to mean reversion in EUR/USD.