EURUSD: Macro Bullish, Brexit Weighs

From a macro perspective, remember that the lower the EUR goes, the more appealing it becomes to engage in buy-side business out of liquidity areas. This thesis hinges on the major divergence observed between the pricing of the pair and the German vs US yield spread (using the 5-yr as ref). What’s more, as a risk barometer, the Italian premium vs German is out of danger territory too as depicted by the magenta line (German vs Italian spread at the highest since late Sept.

On the daily chart, the unambiguous bearish price action heralds that more downside may be in store short-term, mainly driven by the spillover effects of delaying the Brexit vote. A revisit of 1.13–1310, if it occurs, would most likely be greeted with strong buying interest by macro accounts. On the hourly, we’ve confirmed a new hourly cycle low, making any correction a potential sell-side opportunity from a technical standpoint, but in direct collision with fair value, which suggests 1.17 in the EURUSD.