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Sep 04 - 01:55 PM

EUR/USD - COMMENT-Stocks Fall Threatens Dollar Shorts, Deeper EUR/USD Correction

By Randolph Donney  —  Sep 04 - 12:55 PM

If the NASDAQ's recovery in Friday afternoon trade from its nearly 10% two-day plunge proves fleeting, it could help fuel a deeper correction in EUR/USD since it puts short-dollar trades, which have been positively correlated with stocks, at risk.

A stocks correction extending into next week would reinforce the bearish topping pattern that EUR/USD appeared to be forming -- along with EUR/JPY, since the yen is also used as a risk-trade funding currency.
The same holds true for GBP/USD, GBP/JPY, AUD/USD and AUD/JPY.

Rising Treasury yields, due to Friday's jobs report, increased the pressure on short-dollar trades by providing yield support for the U.S. currency, as did the rising VIX, which tends to favor gains in haven currencies, particularly the yen.

EUR/USD threatened a bearish weekly close that would put August's low, and perhaps props by 1.15, into play nL1N2G10NX.
EUR/JPY breached its uptrend line from May's lows, also amid major overbought bearish divergence sell signals.

Key risk gauge, AUD/JPY, clung to kijun support at 76.73, and AUD/USD to its 30-day moving average at 0.7210.

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Source:
Refinitiv IFR Research/Market Commentary

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