- With the S&P striking another all-time high, pressuring the greenback.
- A quick argument to fade EUR/USD vs Stay short the greenback.
- 1.1790 level as the July peak will be guarding a run towards the 38.2% Fibonacci retracement at 1.1855.
With the S&P striking another all-time high today, EUR/USD has just extended its gains as the markets remain in risk-on mode, stripping the greenback of its safe-haven status with respect to an easing up of trade war angst as we approach the dates when China and the US are set to engage in a low-level meeting to reignite talks before Xi and Trump are set to reunite in September at the G20 for the first time since their November meeting.
Currently, EUR/USD is trading at 1.1565 having popped to score a high of 1.1572 from 1.1532 and off 1.1482 Tokyo opening lows. the pop came on the back of the S&P 500 index midday Tuesday booking its first intraday record since late January. The index scored 2,873.03, at last check, beating 2,872.87, which represented the index’s last record on January 26th.
Markets are gearing up for an Autumn of content, optimistic that Trump will level out the playing fields with China after The Wall Street Journal reported last week that a roadmap for further talks would be developed by midlevel Chinese and US officials starting this week. Accompanying these headlines, Trump’s criticism of the Fed has also added to the case for the downside in the dollar at first take.
A quick argument to fade EUR/USD
With respect to the euro, it appears to be momentum buyers that got in once the euro broke 1.15 earlier but this current move might be a stretch too far. First of all, speculative accounts are not especially short EUR, but data from the CFTC Friday did show speculative accounts are effectively the least bullish on the single currency in more than a year. It took a few months for traders to figure the euro wasn’t going any higher than 1.1780 and longs pared back positions which equated to a drop right back to 1.1400 when the gravy train came out on the Turkish currency crisis headlines with Trump throwing their currency under the proverbial bus. That fear of contagion is less, but it has not gone away altogether. At the same time rate differentials strongly favour the US dollar and U.S. rates will rise regardless of Trump’s opinion on the dollar or the Fed – The futures price in around 70bp of hikes by the end of 2019. EUR/USD is going to struggle at the neckline of the H&S and a resumption of the bear trend that started in April when you bring in the contagion risk of Turkey, EMs and Italy. It is hard to see why those that have just pared their positions in EUR/USD would want to own the euro again vs the greenback – (the DE-US spread and the dollar can go much further).
Stay short the greenback
- Jackson Hole preview: dovish headlines could come from Powell – ABN
We have the Jackson Hole coming up this week which has been tipped by analysts at ABN Amro to be potentially Fed dovish, and indeed, should Chinese/US initial talks this Friday prove to be a roadmap for a solution to end the dispute by the end of the year, the dollar will likely be looking at 94.80 instead of 97.20.
EUR/USD levels
That bullish continuation stick on Friday’s close has certainly played out its role and the price broke up through the 10-DMA, as well as 1.1514 and now, bulls are taking on the 21-D SMA and 1.1570/80 zone where the pair is likely to struggle on such a series of long daily sticks and strong momentum while RSI is headed to the peak of June-current levels. However, the pair is on a role and that now brings back the 1.1790 level as the July peak. This will be guarding a run towards the 38.2% Fibonacci retracement at 1.1855. On the flp side, which seems a long way off now, the Macron election bull trade levels and the 10 figure objective lower below 1.1480, (H&S neckline) are at risk.
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