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Thursday, March 9, 2017

EURO/USD OUTLOOK 03/10/2017




The euro fell for the third day yesterday but has shown some signs of life today ahead of the ECB policy meeting, albeit putting in a higher high by only two points. It also put in a 5-day low at 1.0522 before bouncing. Shortcovering ahead of the ECB may be limited because there is hardly a soul to be found who thinks the ECB will change a thing or even hint at a suggestion of the whiff of a possibility of any change any time soon and certainly not before all those tricky elections. We need a downside breakout below the last low at 1.0492, and curiously, it doesn’t look likely.

The ECB was going to leave rates and the buying plan in the same place, why did some traders buy euros (or reduce shorts)? The monetary policy divergence theme has been in play for years by now. Wishful thinking, maybe. Similarly, the Draghi press conference is not likely to deliver any whisper of a change in stance—and yet the euro can’t seem to break 1.0500 to the downside and stay there. Yes, we have an overall downward sloping trend, but the trendline has been flat/ horizontal since mid-November. 





See the chart. What does this mean? We are not exactly sure but we don’t like it. The euro has some solid support and the dollar has some heavy headwinds. If the chart shows a secret tendency to want to buy the euro, it would take only a faintest of whispers of tapering to change the trajectory. Food for thought—not a forecast. It’s peculiar that a downside breakout does not look likely. Maybe it means the rate diff is already fully discounted.
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