Market Analysis

EURUSD: Still on a downbound train?

In last Monday’s post, the level of 1.1313 in EURUSD was flagged up as being cited by some technical analysts as a target for the pair if EURUSD made a daily close below 1.1510. While that specific level hasn’t yet been seen, the EURUSD did trade heavy at the tail end of last week and the sub-1.1510 close attained. As the new trading week begins in Europe, the question is whether the EURUSD continues downwards or if it could stage a rally. Traders might reasonably consider that such was the pace of the sell off in EURUSD on Friday there’s a possibility that the currency market may well already have put on a sizeable short EURUSD exposure, at or close to market levels, and that there is therefore the risk of a squeeze on the topside. But short-term positioning aside, for the euro to sustainedly rally versus the US dollar needs traders to either find reasons to buy euros or sell US dollars or a mixture of both. Yet traders might realistically conclude that the bar is currently set high for such an outcome to occur. At a macroeconomic level, looser US fiscal policy, tighter US monetary policy, not to mention rising trade tariffs, are supportive of USD strength, at least in the short term. Dutch bank ING argued Friday that “2 per cent yields on 3-month US Treasury Bills make the US dollar the go-to safe haven right now.” Notwithstanding today’s announcement by Turkey’s central bank of measures to try and calm the Turkish lira (USDTRY) market, Friday’s media reports asserting European Central Bank concerns about the level of euro zone banks’ exposure to Turkey (at a time when the TRY has been in freefall) may lead traders to conclude that it is currently difficult to frame a persuasive case for any sustained reversal of fortune for the euro versus the US dollar.

Neal Kimberley, External Currency Analyst.