EUR Trading Outlook
EUR/USD Europe was quiet pre-ECB. Rates were unchanged & EUR/USD held just below 1.3375 into Draghi's presser. A mention of intensified prep work on ABS by Draghi early in his presser saw algos take the baton & run. The pair sank near 1.3350. As Draghi continued he wasn't throwing bears anymore bones. A squeeze saw an approach near the 200-HMA as 1.3394 was hit. Draghi then jawboned EUR lower. He noted fundamentals for a weaker FX rate are much better now while also noting that monetary policies in the EZ and US are diverging & will do so for a long time. EUR/USD dived down to 1.3337. Increased sour risk sentiment (JPY strength, lower US yields & stocks) aided the slide. EUR/JPY suffered as well as it neared key 136.00/25 support. EUR/USD managed a slight bounce & sat near 1.3360 late but EUR/JPY saw little relief as it sat just above 136.30. Draghi now hopes for solid US data so rising US yields can push USD up. He may have to wait as there is no major data due until next Wednesday. Should geopolitical risks increase EUR will be under pressure as Draghi noted they will impact growth. EUR may stay heavy into the weekend on as traders fear that risk possibility.
EUR/USD Weak German factory orders for June combined with Italy's Q2 GDP contraction to drive EUR/USD to a new trend low (1.3333) just before it bounced to 1.3345 into NY's open. NY saw short covering early as bids into a 1.3325 barrier, the weekly cloud base (1.3317) and the Nov low would go unfilled due to general USD weakness. Short covering persisted into Europe's close with the pair reaching 1.3360. USD/JPY's wash-out through the 200-DMA and eventual run to 101.77 saw broad based USD sales ensue. EUR/USD hit a 1.3387 high. Only a small pullback was seen as the pair sat near 1.3380 late in the day to leave the pair up tiny on the day. A further squeeze can't be ruled out as the daily RSI diverged & a doji forms on today's candle. Bears hope the ECB will prevent a squeeze as some expect Draghi to up the dovish talk after HICP was below f/c and today's data set showed the EZ econ weakening. IF Draghi doesn't deliver a dovish message shorts are in for trouble. We may then see a quick more to 1.3485/90 where the July 24 high and 21-DMA sit. Above 1.3490 eyes 1.3550.
EUR/USD Above f/c EZ services PMIs & above f/c retail sales results were ignored by Europe as broad based USD strength prevailed. A sharp sell-off saw RM bids into the 1.3400 area filled & the pair slip towards 1.3690 into NY's open. Recent US bond yield weakness wasn't evident in early NY & the USD stayed generally bid. EUR/USD's slide pushed further in NY & accelerated after US non-Mfg PMI came in above forecasts (highest since 2005). Bond yields rallied, USD/JPY spiked up to 102.93 & EUR/USD hit a 1.3358 low. Profit taking from spec names & 1.3350 barrier protective bids halted the slide. Risk sentiment soured quickly in NY's afternoon as equity mkts tanked & US yields gave back some earlier gains. EUR/USD rebounded off the low just a bit to sit near 1.3375 late in the day. The new trend low keeps the bearish bias intact as do day/week RSIs providing negative momentum. Bears feel confident and that is evidenced by their selling ahead of the ECB Thurs. Should Draghi up the dove talk bears will press further. 1.3295/1.3317 (Nov low, weekly cloud base) are then targeted.
EUR/USD Light short covering in Europe's morning lifted EUR/USD from below 1.3380 to 1.3402 just ahead of NY's open. Hawkish comments from the Dallas Fed's Fisher saw the pair pressed below 1.3390. The combination of NFP's miss, uptick in the U rate and below f/c average hourly earnings dealt a blow to USD bulls that disregarded comments from Wednesday's Fed statement regarding labor slack. The USD dived as US yields tumbled. EUR/USD spiked above 1.3430 before dipping towards 1.3410. The dip was bought & a high of 1.3445 was then hit. July's ISM beat took some shine off the rally but the drop in June construction spending aided to keep the USD soft. Late day profit taking gave the USD some relief and the pair sat just below 1.3430. Today's action sees EUR/USD back at the 200-WMA after rebounding off the 50% Fib of 1.2740-1.3995. Daily RSI has turned from o/s while weekly diverged. The risk of a short squeeze exists. There is little data due next week that would halt a squeeze. Shorts may cover until the ECB on Thurs. The l-t trend remains bearish and bulls need >1.3700 to chase away the bears.
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