EUR Trading Outlook
EUR/USD A new trend low of 1.3242 was carved out in Asia, but by then the USD bid from the Fed Minutes had been priced into a market that remains oversold and heavily net spec short EURs heading into Yellen and Draghi's Jackson Hole speeches on Friday. EZ econ data Thursday were below f/c, again, and USD data were all better than expected, but there weren't enough new, eager EUR/USD sellers to retest the o/n lows. Those lows landed between the 38.2% of the '12-'14 rise at 1.3249 and the 61.8% of the '13-'14 rise at 1.3219. Offers aplenty are noted at 1.3285-300 and again into the weekly Cloud base at 1.3317 and 1.3330, with stop above there. The thinking is Yellen will have to be very convincing in her arguments against tightening too soon to weaken the dollar. Another view is that in the dual contest for yield & safety, the USD still wins versus the EUR and the yen, regardless, and that Draghi will be dragged kicking and screaming toward QE over the M-T. Keep in mind that the real cost of EZ govt debt servicing has fallen from post-crisis peaks, but remains well the '12 lows and prevailing pre-crisis levels.
EUR/USD Oversold or not, and with net spec EUR IMM shorts near '12 wides, the surprise for some this week is the renewed breakdown in the EUR/USD sans a meaningful correction. Today's drubbing began with barriers and stops at 1.3300 knocked out, reportedly after ACB offers ran over RM and spec buyers. That move took prices below the Nov '13 lows at 1.3295 and threatens a weekly close below the weekly Cloud base at 1.3317, which would be a major technical blow. Prices have resumed their fall in the NY afternoon after FOMC Minutes revved up rate hike/tightening and even eventual balance sheet contraction speculation. The US curve steepened via higher S-T rates, leaving EUR/USD in the 1.3250s, with talk of another barrier at 1.3250. A weekly close below 1.3300 would open the door to a M-T retest of the Apr '13 nadir & lower 100-wk Bolli in the mid 1.2700s. There's been speculation of late about the EUR becoming a favored funding currency, but the yen won that contest hands down today, putting the 137.63, the 23.6% of 143.79-135.73 slide, back in play. EUR Markit PMIs are on tap Thur, along with US Claims, Philly Fed & Existing Home Sales.
EUR/USD After trundling in a tight range capped by offers at 1.3400 all night and into the NY morning, EUR/USD finally broke below that range and the 200- HMA on word the NAHB was better than forecast, but the sell-off fizzled after there was no follow-through to speak of below Friday's 1.3359 low. While there was no follow-through, there also wasn't much of a bounce to speak off from the 1.3353 session lows. Rising Tsy yields helped the USD generally, while the EUR failed to get any help from widespread equities and risk rallies. In the absence of reserve manager rebalancing demand, some of which may have been lost as hot money exited China recently, and amid the ECB's -10bp depo rate and the major uncertainty from Ukraine, the EUR just doesn't get the risk-on bounce that it used to. Range bidders at 1.3330-40 with stops building below. Betting has begun as to whether Draghi's Jackson Hole trip will pave the way for more easing, and specifically QE, so many are keeping their powder dry until Friday's key speeches. Traders watching the 21-DMA as a topside pivot, Tuesday to be at approximately 1.3402, but below last week's 1.3416 high.
EUR/USD Those traders long EUR/USD and hoping for a short squeeze into the weekend were foiled again. Europe lifted the pair off hourly support near 1.3360 and had it just above 1.3390 into NY's open. The lift continued in the early hours of NY trade and the pair hit a high of 1.3412 which sat just below the 200-WMA and 21-DMA both of which sit near 1.3417. The headlines of increased tension out of Ukraine & Russia put a safe have bid into the USD & JPY. EUR/USD dived towards 1.3375 while EUR/JPY slipped below 136.80. The headline effect wore off quickly though and risk made a comeback. EUR/JPY rallied towards 137.15 and EUR/USD lifted towards 1.3400 and sat just below that level late in the day. The pair remains in its consolidation phase but may break out of it next week. The US gives us July CPI, minutes of the last Fed meeting and the Kansas City Fed's Jackson Hole Symposium. Thursday brings EZ PMIs for August. Soft PMI results may see EUR/USD break lower form the consolidation and take out 1.3295/1.3325 support. If broken bears have their hopes up for a quick run near 1.3100.
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