The US dollar surges along with Treasury yields as the debt ceiling takes center stage. Falling EUR/USD?

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US Dollar, DXY Index, USD, EUR/USD, Federal Reserve, Biden, Yellen, – Talking Points, EUR/USD Could Be Vulnerable

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The US Dollar regained the upper hand last week with the DXY Index posting its biggest weekly gain since September of last year.

The DXY Index is a US dollar index weighted by EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%).

EUR/USD and GBP/USD recorded the largest declines while USD/JPY also gained but to a lesser extent. Treasury yields ended higher on Friday and have been flat so far throughout the Asian session with the benchmark 2-year bond close to 4%.

Concerns remain around the US debt ceiling, but President Joe Biden expressed some optimism over the weekend that a solution could be found. He will meet again on Tuesday with Speaker of the House of Representatives Kevin McCarthy.

The Senate and House of Representatives are both in session until Thursday. According to the presidents’ schedule, he will be in Washington until Wednesday before leaving.

If an agreement is not reached by Thursday, the logistics of reaching a satisfactory outcome could become more difficult.

Treasury Secretary Janet Yellen made it clear over the weekend that raising the debt ceiling is a matter for Congress and that if it doesn’t happen, the US economy and financial markets will suffer damage.

US DOLLAR (DXY), US 2 AND 10 ANSEUR/USD YIELDS TECHNICAL ANALYSIS

EUR/USD remains in an ascending trend channel, but looking closely at the price action on Friday, it closed below the Bollinger Band based on the 21-day simple moving average (SMA).

The breakout in volatility could indicate that potential bearish momentum may be emerging. A close inside the band may signal a break in the downtrend or a possible reversal.

Support may be seen at previous lows of 1.0831, 1.0788 and 1.0713. Among these levels are the 100-day SMA and the rising trendline currently at 1.0800 and 1.0760 respectively, which could provide support.

On the upside, resistance could be seen at previous highs in the 1.1075 1.1095 area ahead of the March 2022 high at 1.1185.

Recommended by Daniel McCarthy

How to trade EUR/USD

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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