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Feb 05 - 12:12 PM

EUR/USD - COMMENT-EUR/USD Shorts Gain Strength From ADP To Take On Key Support

By Christopher Romano  —  Feb 05 - 10:20 AM

EUR/USD shorts are growing increasingly confident and look set to test key 1.0980/90 support as bearish factors line up against the euro, including today's forecast-beating U.S. ADP jobs data nL1N2A50I9.
The ADP result, the strongest since May 2015, drove U.S. Treasury yields higher, which widened German-U.S.
spreads and increased the dollar's yield advantage over the euro.
The report bolstered risk sentiment, which was already improving and is another factor driving the euro lower -- not only against the dollar but other higher yielders.
As risk is buoyed investors short euro to fund better yielding investments.
EUR/AUD's sharp fall toward 1.6260 highlights the carry trade effect.
Central bank expectations bolster confidence in carry trades.
The ADP report has pushed back expectations for a Fed cut to November FEDWATCH.
A speech by RBA Governor Lowe also reduced RBA cut expectations RBAWATCH after he said the crossing point to where low rates become a risk is getting closer nL1N2A50E5.
Meanwhile options suggest that shorting the euro for carry trades will remain attractive as 1-month EUR/USD ATM vol EUR1MO= nears a 6-week low.
EUR/USD's low volatility will help drive investors into riskier assets.
Daily and monthly RSIs imply bearish momentum remains and a 1.0980/90 test is likely.
A break of that support would target 1.0940/45 support and October's 1.0879 low.

chart: Click here

chart: Click here

chart: Click here

Refinitiv IFR Research/Market Commentary


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