26 May 2014
EUR requires a more commited bear here - Scotiabank
FXStreet (Guatemala) - Camilla Sutton, CFA, CMT, Chief FX Strategist at Scotiabank noted that the EUR has recovered from its multi‐month low reached early in the European session.
Key Quotes
"EUR has recovered from its multi‐month low reached early in the European session. President Draghi’s speech titled “monetary policy in a prolonged period of low inflation” suggests that at the June 5th ECB meeting action will be taken on interest rates and potentially targeted measures to help alleviate credit constraints."
"To justify QE the ECB would have to see ‘too prolonged’ low inflation or falling inflation expectations. As we move towards the ECB decision, the flash CPI estimate on June 3rd becomes a pivotal data release."
"This week German IFO and exports and Eurozone confidence are the core releases; but unlikely to really shift policy expectation. Periphery bond yields are marginally lower today, suggesting ongoing flows into the peripherals—which offsets the build up in EUR short positions (CFTC reported these at $1.5bn last week)."
"For material downside in EUR to materialize (which we expect before year‐end) we need to see flows shift to a committed bearish stance. This includes, building short positions on EUR, a bottoming in the peripheral yields and the option markets protecting against USD upside (can be measured through risk reversals)."
"EUR/USD short‐term technicals: bearish ‐ all studies warn of downside risk with the MACD reaching a new low in tandem with the currency (see chart) and the 4‐day MA is trading below the 9day MA; which is also trading below the 21‐day MA. In addition there is a building downward trend in place."
"Support lies first at 1.3600, followed by 1.3520; while resistance comes in at 1.3700. For short‐term traders we favour short EUR positions looking for a test down to 1.3520."
Key Quotes
"EUR has recovered from its multi‐month low reached early in the European session. President Draghi’s speech titled “monetary policy in a prolonged period of low inflation” suggests that at the June 5th ECB meeting action will be taken on interest rates and potentially targeted measures to help alleviate credit constraints."
"To justify QE the ECB would have to see ‘too prolonged’ low inflation or falling inflation expectations. As we move towards the ECB decision, the flash CPI estimate on June 3rd becomes a pivotal data release."
"This week German IFO and exports and Eurozone confidence are the core releases; but unlikely to really shift policy expectation. Periphery bond yields are marginally lower today, suggesting ongoing flows into the peripherals—which offsets the build up in EUR short positions (CFTC reported these at $1.5bn last week)."
"For material downside in EUR to materialize (which we expect before year‐end) we need to see flows shift to a committed bearish stance. This includes, building short positions on EUR, a bottoming in the peripheral yields and the option markets protecting against USD upside (can be measured through risk reversals)."
"EUR/USD short‐term technicals: bearish ‐ all studies warn of downside risk with the MACD reaching a new low in tandem with the currency (see chart) and the 4‐day MA is trading below the 9day MA; which is also trading below the 21‐day MA. In addition there is a building downward trend in place."
"Support lies first at 1.3600, followed by 1.3520; while resistance comes in at 1.3700. For short‐term traders we favour short EUR positions looking for a test down to 1.3520."