Technical Analysis
The ECB, which was broadly interpreted as dovish yet EUR/USD took almost three weeks to trade under the low of May 29 at 1.1510 and in that period specs sold at least 7 billion reducing the net long position to just 4.5 billion euros by June 19 and It was not until June 21 that EUR/USD finally traded 1.1508. Until we break the key 1.225 level I am bearish on EUR/USD for the Mid-Term.
Fundamental Analysis
The resilience of EUR/USD support in the face of huge speculative selling after the ECB pushed back the timing of its first hike is a strong indication that the pair has based or is close to basing, therefore, logically the net long position has been reduced further. As a result such massive selling for almost no gain suggests there has been a meaningful change in factors determining direction. The biggest of these is the CNY which has staged a rapid and huge turn lower undermining risk appetite and supporting big components of the TWI like the euro, and safer assets, again euro. Meanwhile risk aversion is likely to see SNB support EUR/CHF which will also prop EUR/USD. Keep an eye on the European Council Meeting later this week on the 28-29th June, for some further insights in the uncertain future of the Euro Zone.
In regards to USD, there are a few things of importance to consider; firstly, the difference in policy settings between the US Federal Reserve and other central banks is key - where the Fed is raising rates, the rest of the world are either doing so at a much slower pace, or not at all. This creates a divergence that has been playing in favour of the Dollar as investor capital flows from areas where interest rates are low to where they are higher as investors seek better returns. US trade policy is now a big factor - as US President Trump ups the ante, so markets run scared and investors liquidate a portion of their holdings and often they are liquidated into Dollars. Hence, trade war rhetoric is playing positive for the Dollar.
The ECB, which was broadly interpreted as dovish yet EUR/USD took almost three weeks to trade under the low of May 29 at 1.1510 and in that period specs sold at least 7 billion reducing the net long position to just 4.5 billion euros by June 19 and It was not until June 21 that EUR/USD finally traded 1.1508. Until we break the key 1.225 level I am bearish on EUR/USD for the Mid-Term.
Fundamental Analysis
The resilience of EUR/USD support in the face of huge speculative selling after the ECB pushed back the timing of its first hike is a strong indication that the pair has based or is close to basing, therefore, logically the net long position has been reduced further. As a result such massive selling for almost no gain suggests there has been a meaningful change in factors determining direction. The biggest of these is the CNY which has staged a rapid and huge turn lower undermining risk appetite and supporting big components of the TWI like the euro, and safer assets, again euro. Meanwhile risk aversion is likely to see SNB support EUR/CHF which will also prop EUR/USD. Keep an eye on the European Council Meeting later this week on the 28-29th June, for some further insights in the uncertain future of the Euro Zone.
In regards to USD, there are a few things of importance to consider; firstly, the difference in policy settings between the US Federal Reserve and other central banks is key - where the Fed is raising rates, the rest of the world are either doing so at a much slower pace, or not at all. This creates a divergence that has been playing in favour of the Dollar as investor capital flows from areas where interest rates are low to where they are higher as investors seek better returns. US trade policy is now a big factor - as US President Trump ups the ante, so markets run scared and investors liquidate a portion of their holdings and often they are liquidated into Dollars. Hence, trade war rhetoric is playing positive for the Dollar.