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Oct 16 - 11:55 AM

EUR/USD - COMMENT-EUR/USD At Risk Of More Losses Even After Bounce

By Christopher Romano  —  Oct 16 - 10:10 AM

EUR/USD rebounded from two-week lows on Friday, potentially shaking out weak short positions, but risks from the U.S. economic recovery, COVID, Brexit and inflation could lead to a resumption of losses.

A big upside surprise in September U.S. retail sales nL1N2H61J3 drove Treasury yields and the dollar higher.
The data suggested the U.S. economy could outpace the euro zone recovery, which faces risks from tighter pandemic restrictions nL4N2H72LS.

The sales data could make agreement on a U.S. stimulus deal or additional Fed accommodation less likely, which has helped buoy U.S. rates and widened German-U.S.
spreads further in the dollar's favor.

Brexit uncertainty remains a downside risk to EUR/USD after U.K. Prime Minister Boris Johnson said it was now time to prepare for a no-trade deal exit nL8N2H710TnL4N2H72WM.

Diminishing inflation expectations should maintain downside risks.
Euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R are trading at 3-month lows and showing no signs of reversing that trend.

Techs highlight downside risks.
EUR/USD is consolidating its fall from the Oct.
9 peak and a monthly gravestone doji has formed.

Tests of the September monthly low or even 1.1485/95 support could be possible.

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Source:
Refinitiv IFR Research/Market Commentary

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