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Jan 13 - 11:55 AM

EUR/USD - Bulls See No Reason To Catch The Falling Knife

By Christopher Romano  —  Jan 13 - 09:43 AM

Jan 13 (Reuters) - With EUR/USD falling to a new 26-month low on Monday, and a test of parity and possibly below looking likely, counter-trend investors see no need to be brave just yet.

U.S. Treasury yields extended their uptrends which drove broad based dollar buying which helped depress EUR/USD through 1.02.

The dollar's yield advantage over the euro increased as German-U.S. 2-year spreads widened while terminal rate spreads for the Fed and ECB widened to -198bps.

The EUR/USD drop helps to intensify technical signals which highlight downside risks.

The pair pierced the 61.8% Fibonacci retracement of the 0.9528-1.1276 rally, and a monthly inverted hammer candle in place for January.

Those signals reinforce bearish signs from EUR/USD trading below the falling 5- and 21-day moving averages, as well as signs from falling daily and monthly relative strength indices which are not oversold and imply downward momentum remains.

Investors are now focused on U.S. December PPI, CPI and retail sales data this week, which will indicate if inflation could be returning and also the health of the American consumer.

Hotter than expected data could see investors price out expectations for a lower Fed Funds rate, and possibly begin pricing in a rate hike.

The dollar would likely get another boost if so, which could deflate EUR/USD through 1.00 and towards the 76.4% Fibo of 0.9528-1.1276 which sits near 0.9940.
eurusd


(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Source:
London Stock Exchange Group | Thomson Reuters

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