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Feb 06 - 12:12 PM

EUR/USD - COMMENT-EUR/USD Shorts Press The Advantage Ahead Of US Jobs Report

By Christopher Romano  —  Feb 06 - 10:40 AM

Shorts pushed EUR/USD to a 4-month low, undeterred ahead of the U.S. January jobs report.
Shorts are leaning on recent upbeat U.S. data, which has nL1N2A5193nL1N2A50XX rallied U.S. Treasury yields and kept the dollar attractive to investors.
The data helped widen German-U.S.
yield spreads which, until the end of January, had been tightening sharply.
The data has also pushed back market expectations for a Fed cut to November 2020 FEDWATCH.
The recent rebound in risk sentiment also benefits EUR/USD bears as the euro is shorted to fund flows into riskier and higher yielding assets nL1N2A50RQ.
EUR/USD shorts are treading confidently despite a rebound for euro zone inflation expectations EUIL5YF5Y=R and risk reversals EUR1MRR=FN for EUR/USD options showing premiums for calls increasing over puts, which suggests options investors expect EUR/USD to rally.
Friday's jobs report is key now.
A result similar to upbeat ADP and weekly claims reports should push expected Fed cuts further back and rally U.S. yields.
Dollar bulls are likely to charge on an upbeat result and EUR/USD's fall from December's peak should deepen.
Shorts would then have the confidence to test 2019's 1.0879 low.
Should that low break the May 2017 low at 1.0839 and likely 1.0800 barriers will be targeted.

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Refinitiv IFR Research/Market Commentary


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