EUR/USD rose on Tuesday, rebounding from the previous session's losses and then some as risk sentiment recovered, but lingering Evergrande concerns nL1N2QN02R along with options, positioning and technicals suggest the downside remains the path of least resistance.
The risk rally seemed frail however, with equity gains fading and eurodollars EDz2 rallying while oil and copper turned negative.
Safe-haven buying of the dollar, yen and government debt DE10YT resumed as investors remain cautious.
EUR/USD options show investors are alert to downside risks.
Risk reversals EUR1MRR=FN show vol premiums for EUR/USD puts slightly exceeds those for calls.
Positioning reinforces downside risks.
The latest CFTC stats net-long euro positions reached their highest in four weeks.
Should risk aversion intensify investors are likely to exit those positions due to a flight to safety.
Technicals highlight downside risks.
Long upper and lower wicks on recent daily candles imply EUR/USD is likely consolidating its fall from the Sept.
Consolidation should resolve with new lows.
Falling daily and monthly RSIs along with September's monthly inverted hammer reinforce bearish techs.
A break of August's low and test of support near 1.1600 still seem likely.
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