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Sep 21 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Longs Are Closer To Throwing In The Towel

By Christopher Romano  —  Sep 21 - 10:20 AM

EUR/USD slumped 0.7% on Monday as investors opted for safe havens in the face of growing pandemic nL5N2GI2YJ, political and financial uncertainties nL3N2GI0GW, compounding risk factors threatening to send the euro falling out of the range it has held since late-July.

The death of Justice Ruth Bader Ginsburg added another layer of uncertainty to an already heated U.S. election season nL2N2GH04C, helping to encourage safe-haven dollar buying.

ECB President Lagarde's said current uncertainty required assessment of exchange rate developments nF9N2G600S, indicating possible concern about euro strength.

Potential lock downs in Europe due to a COVID-19 second wave nL3N2GI184 have investors doubting Europe's already fragile recovery.

Euro zone inflation expectations remain fragile after 5-year/5-year inflation linked swaps EUIL5YF5Y=RR peaked in August and now appear to be trending lower.

Options markets indicate growing concerns about EUR/USD downside as risk reversals show vol premiums for EUR/USD calls over puts diminishing while expiries with strikes in the 1.1600-1.1700 range are bought nL2N2GI092.

CFTC data show euro longs were reduced nL1N2GF1KK, a continuation of which should hurt EUR/USD.

A test of 1.1685/1.1725 support is likely.
A break could lead to a test of the 1.1500 area.

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Source:
Refinitiv IFR Research/Market Commentary

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