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Sep 29 - 11:55 AM

EUR/USD - COMMENT-Pyrrhic Victory For EUR/USD Bulls As ECB Risk Looms

By Christopher Romano  —  Sep 29 - 10:15 AM

EUR/USD struck a 5-session high on Tuesday, battling back from a recent downtrend, but longs face a tough slog with disinflation and euro strength likely to be the focus of upcoming ECB speakers.

Downside surprises in German September HICP and CPI nL8N2GQ420 -- with a -0.4% year-on-year result -- highlighted the disinflation and deflation challenge a day before the ECB and Its Watchers conference of policy makers.

EUR/USD is nearly 2.6% lower from its Sept.
1 peak but not probably not enough to dispel ECB concerns about euro strength.
On Monday ECB President Christine Lagarde reminded markets that the exchange rate is part of the information that policymakers weigh.

ECB rhetoric has helped to maintain downward pressure on Bund yields DE10YT=RR and euribor rates FEIZ1, increasing the importance of Wednesday's conference for policy expectations.

Investors' inflation expectations should remain a concern for EUR/USD longs.
Euro zone inflation linked swaps EUIL5YF5Y=R extended the downtrend after breaking trend line support.

Longer-term EUR/USD bears have welcomed the current short squeeze and likely lurk in the 1.1725/75 zone with the expectation of 1.1485/1.1510 getting tested.

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Source:
Refinitiv IFR Research/Market Commentary

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