Analysts at MUFG Bank are recommending a trade idea of shorting the EUR/USD pair with a target at 1.1300, an entry level of 1.1650 and a stop at 1.1850. They consider the EUR/USD could struggle to build on Thursday’s gains.
Key Quotes:
“The EUR bounced yesterday on a sense that ECB President Lagarde was less than enthusiastic in pushing back current market pricing for rate hikes next year. But senior central bankers rarely comment on specific market pricing and hence we did not view Lagarde as shifting the ECB stance in any way. We are in a market where investors are increasingly questioning the forward guidance of central banks – but we would argue that the ECB is on more credible ground than some of the other central banks and therefore a sustained divergence favouring a weaker EUR is likely to persist going forward.”
“The focus next week will shift of course to the FOMC and while we do not get any formal updated guidance on rates, we will get the QE tapering plan, the statement and the press conference and it is likely that Fed Chair will talk tougher on inflation given developments of late. We don’t expect any huge shift in tone or message but enough to prompt some reversal of the heavy USD selling in evidence in October.”
“Technically, EUR/USD is at an interesting point as well. The downtrend resistance on the daily intra-day chart from the highs in June and again in September comes in a little above the current spot rate (1.1706 today) and that could act to limit the upside over the short-term.”
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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