EUR Trading Outlook
EUR/USD A tight range held in Europe's morning with EUR/USD lingering near 1.3190 as the USD and US bond yields were generally soft. Early NY saw a minor recovery for yields and USD. EUR/USD dipped below 1.3170 even as it was announced the ECB selected Black Rock to help develop a plan for ABS buys. The dip was short lived though. A Reuters story quoting unnamed ECB sources stated that new ECB action next week is unlikely unless August's CPI data show the EZ heading significantly towards deflation. EUR/USD spiked higher as shorts scrambled to cover. The pair cleared 1.3200 and hit a 1.3210 high. Asian sellers stalled the rise and the pair then drifted a bit lower. Late in the day the pair sat just below 1.3200. Traders now turn their focus to German August jobs and inflation data followed by US GDP and jobless claims. Should the German data come in weak the comments by the ECB sources may lose their influence and EUR/USD might then make another try at cracking 1.3150.
EUR/USD Consolidation & a short squeeze threat was the theme o/n & that theme looked set to carry though NY. An early NY dip ~1.3185 was bought as US bond yields & USD were soft. The durable goods core reading was disappointing & aided the buyers. EUR/USD rallied towards 1.3210 & looked set to try a run for 1.3230 stops. The lift faltered though as sovereign sellers capped. A steady drift took hold & the pair neared the early NY low after US consumer confidence was well above estimates. EUR/USD bears that were looking to fade a bigger rally missed their chance much like they missed out on selling rallies in July. The USD began firming further & bond yields bounced to send EUR/USD through 1.3175/80. Stops were run and a new trend low of 1.3164 was hit. Very little bounce was seen and the pair sat near 1.3170 late in the day. Next week's ECB meeting is gaining significance as mkt sentiment grows that Draghi may move sooner than expected. If Draghi acts it's likely 1.3100 will be cleared and the psychological 1.30 level will be in play.
EUR/USD Europe and NY both made feeble attempts to rally EUR/USD off Asia's low. The bounces were short lived as solid offers camped in the 1.3210/20 zone combined with a broad based USD bid were too much to overcome. A recovery in US bond yields from their lows allowed yield spreads to edge further in the USD's favor. This aided in keeping bearish pressure on EUR/USD even after a well followed US bank's tech team cut their EUR/USD short and flipped it to a long position. Late in the day the pair sat just above 1.3190 to se the pair down near 0.35% on the day. The risk of a squeeze does exist as day/week RSIs are o/s. However, they show no signs of diverging on the new trend low, so further losses cannot be ruled out. Big data risk later this week may see profit taking enter the mkt if no additional losses occur soon. The mkt will be keying on the EZ's August CPI due Friday. A below f/c result should see spreads widen drastically and EUR/USD's slide accelerate.
EUR/USD After Asia's failed attempt to bid prices back above 1.3300, EUR/USD trundled lower on spec selling interest that intensified after Yellen's JH speech. The session low at 1.3220 landed right on the 61.8% retracement of the '13-'14 rally. Neither Yellen's speech nor the papers presented on the labor markets created a crisp insight into policy or a solid case for the Fed accelerating its cautious normalization plans, which left an oversold mkt facing pre-weekend short profit-taking into the London close. The same calculus applied after Draghi's speech in the afternoon. Without a major policy shift, the urge to book some profits prevailed, particularly as morning Tsy bond yield gains were trimmed. That said, the front of the curve has held most of it yield rise from Yellen. Draghi sounded a brave note re TLTROs, ABS, GDP improvement and room for further EUR/USD slippage due to diverging Fed & ECB policies. QE was also hinted at as a backstop, but the more the EUR falls, the less pressure there is for new easing measures. Barriers at 1.3200 go wanting, but the week's ending well below the weekly Cloud; a M-T sell signal in-and-of itself.
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