EUR/USD Flows: UST pivotal steepen post Fed, US30s >5.2%

Asia session sees some trimming of the post Fed dollar sell, as the US-Iran conflict intensifies afresh with the US following through on Trump’s strengthened strikes in retaliation. Brent up another $2 though not quite back to Monday’s opening gap high yet, with that gap being the key line in the sand near-term.

EUR/USD’s post Fed high has been 1.1475 as the market has trimmed the Fed’s Sep hike bet to around 30%, while the ECB is still seen with a 2/3 chance of a follow up hike. Today’s BoE meeting has just a 10% chance of a hike.

Yesterday’s press conference left the market confused on Warsh’s argument and logic, and while the new chair is a fan of market led moves and signalling, he may not be so pleased to see the curve pivotal steepen with US30s breaking above the Oct23 5.2% high, suggesting the market viewed the meeting as lacking credibility. The message, if perhaps badly conveyed, that Warsh was happy to delegate financial conditions to the market has also encouraged a degree of loss of curve control in the aftermath. Ironically, this could end up adding to pressure on the Fed to prove its words in Sep if the current action extends.

Near-term the question for the market is whether, relative to pre-meeting, the steepening is dollar supportive at the long end spreads, or negative at the short-end and via its negative credibility signal. Or of course whether widening Middle East conflict bolsters the dollar regardless

On EUR/USD, 1.1482-1.15 is key resistance, as above here suggests further retracement risk. Nudging below 1.1450 support with the prior 1.1410/00 below that on backfilling of the kneejerk and if Iran and risk-off reasserts as the key driver.