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Jul 23 - 01:55 PM

EUR/USD - COMMENT-It's Hard To Keep A Good EUR/USD Down

By Christopher Romano  —  Jul 23 - 11:55 AM

Amid shallow dips and a 21-month high, EUR/USD bears have their feet to the fire.

Early NY price action saw EUR/USD dive to 1.1540 (EBS) as a bout of risk-off sentiment hit the market.
That said, dip buyers quickly emerged, and potential is increasing that resistance near 1.1630 will soon be overwhelmed.

Indeed, with little change in equities Thursday, and stagnating commodity prices, the U.S. dollar continues to be shunned.
This as the U.S. 10-year Treasury yield US10YT=RR nears its July 10 low, while fed funds futures prices FFN1 remain near recent highs.
These factors are both dollar negative.

Technicals highlight downside risks for the broader dollar index =USD as well.
The long-term trend line off the 2018 low recently broke, putting the March 2019 low in play.
Additionally, daily and monthly RSIs imply bearish momentum is intact.

The euro is also getting some support from yield spreads and inflation expectations.
German-Italian yield spread tightening is accelerating after a consolidation phase ended, while euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R continue to press higher.

All of these factors are helping keep EUR/USD buoyant, and are likely to drive a break of the October 2018 high (1.1629 EBS).
This would then open the door for a test of 1.1815/55, where the September and June 2018 highs sit.

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Source:
Refinitiv IFR Research/Market Commentary

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