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  • Currently, EUR/USD is supported by a risk-on environment.
  • NAFTA and trade talk progress is positive…but…
  • The CPI data tomorrow will be most key and a miss there could certainly send the dollar into a tailspin.

EUR/USD has been trending higher, supported by the 21-D SMA down at 1.1578 and bulls have their eyes on the cloud top up at 1.1681. Currently, EUR/USD is supported by a risk-on environment and is trading in the 1.1630’s having made an intra-day high of 1.1650 (cloud base) following positive Brexit headlines, NAFTA looking to close as soon as next week, US and China seeking to re-start trade negotiations and the DXY breaking below the key 95.90 support level.  

EUR/USD is carving out a bullish case on a technical basis while supported by various risk-on fundamentals that have evolved over the last couple of weeks. However, a may be prudent to get too caught up in those on a longer-term play considering that the fundamentals still give the greenback advantage when considering the divergence between the US economy and that the eurozone and their subsequent path of monetary policies at the Central Banks.  

On the Brexit front, where headlines have been supportive and cable has taken the lead today, dragging the euro higher, the latest headline came with, ‘the EU said to begin redrafting Irish Brexit protocol to appease UK’, which sent the pound on a rally from 1.3025 to a high of 1.3074 for the session, (currently back to 1.3065 after dropping back to 1.3052 as the post headline pullback). The news followed earlier headlines that Juncker confirmed that they aim for close ties with UK, (cable rallied to 1.3050 in European trade on that noise).

NAFTA and trade talk progress is positive and certainly will improve the conditions for emerging market sentiment and macroeconomics . . .

While NAFTA and trade talk progress is positive and certainly will improve the conditions for emerging market sentiment and macroeconomics, the rest of the world has a great deal of catching up to do and the carry stays with the greenback that is still serving as the worlds reserve currency – at the slightest hint of stalling on trade talks, the greenback will likely play out its safe haven role and can sharply reverse any near-term corrections and we are back to the drawing board again. The key levels in the DXY are 95.70 and 94.90…on to 94.40 and 93.30/20.

As far as data goes, the Eurozone IP disappointed for the sixth time of its seven releases this year –  (IP fell 0.8% mm in July vs the -0.5% mm f/c but more importantly, IP on a yy basis also dropped 0.1%, first drop since Jan 17). BBG news suggested that the ECB will lower EZ growth outlook tomorrow – subsequently, putting bulls back in their pens.

We have just had the Beige book, that was gloomy on the trade war front but optimistic overall on the economy and forward projections which underpins the case for further Fed hikes that should support the dollar going forward on the carry trades – however, there es little market reaction, as there was nothing really new in the details that markets had not already factored into the price – The CPI data tomorrow will be most key and a miss there could certainly send the dollar into a tailspin, (watch key DXY levels) – Additionally, any further encouraging headlines from NAFTA or indeed US/China will likely fuel an unwind as well and lift MEs  – sending the EUR/USD en-route to the 1.1710 daily 29th Aug high.

EUR/USD levels (IFR Markets Email Alerts System)  

1.1710      Daily High Aug 29
1.1691      Daily High Aug 31
1.1681      Daily Cloud Top
1.1649      Daily Cloud Base
1.1619      ==Update Price==
1.1578      21-Day MA
1.1565      Daily Low Sep 11
1.1558      30-Day MA
1.1525      Daily Low Sep 10

Analysts at Commerzbank explained that EUR/USD continues to hold over the 1.1510/08 supports:

“This leaves scope intact for recovery to resistance offered by the 1.1745/50 area and the 1.1790 recent high. A rally above here is needed to trigger a move to the 1.1853 mid-June high and the 1.1910 55 week ma. Meanwhile we remain unable to rule out a retest of the 1.1508/10 May and June lows. We suspect that the recent low at 1.1301 was a significant turn for the market. The cross will need to drop sub 1.1508 to alleviate immediate upside pressure.”

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