EUR/USD rallied on upbeat risk sentiment toward resistance at 1.1685/95 nL1N2GP0EC, which had been support until recently, but the gains may be little more than an opportunity for bears as diverging central bank rhetoric, positioning and technicals favor more euro losses.
ECB policymaker Ignazio Visco's comment on Sunday that euro strength is worrying nL8N2GO0FI should hearten bears, especially as the Fed appears unlikely to increase stimulus anytime since recent U.S. economic data suggests the recovery remains intact.
CFTC data showed net-long euro positions increased as net-short-dollar positions rose nL2N2GM1NQ, which should limit any EUR/USD upside as the increases occurred as it fell sharply.
Those positions are likely now underwater.
Those factors combined with existing other bearish EUR/USD influences should limit gains.
Euro zone inflation expectations continue to deteriorate.
Euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R threaten to break the upward trend off the March low.
Technicals suggest more downside could be due.
EUR/USD could now be consolidating its recent drop ahead of Fed speakers and ECB Watchers Conference risks.
A break below 1.1610/15 support would suggest the consolidation is complete and a test of 1.1485/1.1510 is due.
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