The more you watch the markets, the more you understand the shock they are experiencing. If earlier investors looked at U.S. stock indices to gauge global risk appetite, now it doesn't work that way. Just recently, the rally in U.S. Treasury yields served as a guiding star for "bears" on EUR/USD, but at the end of the second decade of October, the interest rates on 10-year debts, almost 5%, don't seem to bother anyone anymore. How can we make sense of all that is happening?

U.S. Treasury Yields Dynamics

Another paradox with the major currency pair occurred after the release of statistics on U.S. jobless claims. The indicator for the week ending October 13 dropped to its lowest level since January. This, combined with impressive data on U.S. employment, suggests that the labor market is on solid ground. Perhaps we should be talking not about a recession or a soft landing but about the surge of the U.S. economy.

In contrast to the releases of data on retail sales and industrial production, the bond market reacted differently to the statistics on jobless claims. The Treasury bond yields decreased. This is due to investors' reluctance to enter into transactions ahead of Federal Reserve Chairman Jerome Powell's speech.

Jobless Claims Dynamics

Powell is expected to repeat the mantra of his colleagues, stating that the U.S. debt market does part of its job by raising yields. This tightens financial conditions and theoretically should cool both inflation and the economy. However, consumer prices are still far from the 2% target, which keeps the Fed's door open for the resumption of the monetary restriction cycle.

In other words, investors are prepared for Powell's vague comments that will confirm the Fed's reluctance to raise rates in November. Nevertheless, the chances of a rate hike in December or January will remain elevated. The futures market estimates them at 39% and 47%, respectively.

However, the speech of the Federal Reserve Chairman may not calm investors. The chaos in the markets is not caused by monetary policy or recession fears but by the crisis in the Middle East. Regardless of who is to blame for the explosions at the hospital in Gaza, they increase the likelihood of escalating geopolitical tensions. Conversely, the efforts of the U.S. and European countries to resolve the situation diplomatically are seen as de-escalation and lead to a decrease in Brent crude prices and a rise in EUR/USD.

Technically, on the daily chart of the major currency pair, there is a Splash and Shelf pattern based on 1-2-3. To open medium-term positions, wait for a breakout of the 1.064 resistance or a successful breach of the 1.05 support. In the first case, it will be about buying the euro against the U.S. dollar. In the second, it's about selling EUR/USD. For now, focus on trading from consolidation: form shorts on rising and longs on falling quotes.