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Sep 02 - 01:55 PM

EUR/USD - COMMENT-EUR/USD Correction Likely To Deepen As Bearish Factors Increase

By Christopher Romano  —  Sep 02 - 10:25 AM

EUR/USD extended its slide after breaking above 1.20 during the previous session as clouds gathering on the horizon indicated the euro's correction could deepen.

Downbeat euro zone and German data weighed after August euro zone inflation fell sharply nL8N2FY2F6 and July German retail sales unexpectedly tumbled nL8N2FZ0Y6.

The data lifted euribor prices FEIZ1 and widened German-U.S.
yield spreads.
Inflation expectations are also falling and could be putting in a major top.
Euro zone 5-year/5-year inflation linked swap EUIL5YF5Y=R are sinking after two attempts to break 1.26% failed.

ECB chief economist Philip Lane's comment on Tuesday that "The EUR/USD rate does matter" https://bloom.bg/3lGvfPz adds pressure, while technicals highlight downside risks.

EUR/USD followed Tuesday's inverted daily hammer with downside price action on Wednesday.
Daily and monthly RSIs imply bearish momentum is growing and the 10- and 21-day moving averages have been pierced.

CFTC data nL1N2FU1WU show that net-long euro positions remain at extremes, adding fuel to the correction.
EUR/USD's failure to hold above 1.2000 nL1N2FY0XS is likely prompting euro longs to exit their positions.

EUR/USD looks set to test key 1.16959/1.1710 support, and a break there could herald a fall to 1.1400/520.

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Source:
Refinitiv IFR Research/Market Commentary

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