Well the Euro managed to pierce 1.20 yesterday morning and get a nice, optically noticeable new high on the record.
That was the good news for bulls. The bad news was pretty much everything else that happened after that, which included a sudden, sharp fall immediately after the highs that never really relented. After the London close, ECB’s Lane helped the Euro accelerate to the NY session lows by taking note of the Euro’s large move of the past several months and essentially saying that the ECB does not target an FX rate but certainly cares about it.
I personally do not view these remarks as cause for great alarm, but it is natural for the Euro to react at least a little bit when any influential ECB member comments on the exchange rate. It is also the first we have heard from them on FX in some time.
The weakness continued overnight to 1.1892, where it finally held and has since bounced modestly. With the September ECB meeting next Thursday, and given the price action off the 1.20 level, it is totally feasible that the market stays on the defensive in the near term. Our strategy team also commented yesterday on the Euro area’s inflation undershoot being even wider than the US’, and that perhaps this deserves more attention than it has received given the recent move in the currency.
With all of the above said, while we tactically reduced the level of our near term conviction yesterday, we still feel usd weakness will persist in the medium term, and we will look to rebuild the bullish EURUSD view sooner versus later, certainly on a further dip and eventually even without a further dip.
In our view, usd weakness is likely to remain the dominant theme as we press into autumn.
The near term feels less certain though with the market clearly caught flat-footed yesterday, and for that reason we are running with a more moderate level of conviction now and will monitor flows/price action closely.
That was the good news for bulls. The bad news was pretty much everything else that happened after that, which included a sudden, sharp fall immediately after the highs that never really relented. After the London close, ECB’s Lane helped the Euro accelerate to the NY session lows by taking note of the Euro’s large move of the past several months and essentially saying that the ECB does not target an FX rate but certainly cares about it.
I personally do not view these remarks as cause for great alarm, but it is natural for the Euro to react at least a little bit when any influential ECB member comments on the exchange rate. It is also the first we have heard from them on FX in some time.
The weakness continued overnight to 1.1892, where it finally held and has since bounced modestly. With the September ECB meeting next Thursday, and given the price action off the 1.20 level, it is totally feasible that the market stays on the defensive in the near term. Our strategy team also commented yesterday on the Euro area’s inflation undershoot being even wider than the US’, and that perhaps this deserves more attention than it has received given the recent move in the currency.
With all of the above said, while we tactically reduced the level of our near term conviction yesterday, we still feel usd weakness will persist in the medium term, and we will look to rebuild the bullish EURUSD view sooner versus later, certainly on a further dip and eventually even without a further dip.
In our view, usd weakness is likely to remain the dominant theme as we press into autumn.
The near term feels less certain though with the market clearly caught flat-footed yesterday, and for that reason we are running with a more moderate level of conviction now and will monitor flows/price action closely.
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