Intraday Market Thoughts

Euro at 4-Month Highs & 4 Analogs

by Adam Button
Jul 15, 2020 17:31

The euro broke above $1.14 Wednesday and a close there would be the highest since March 2019. EUR was the top performer on Tuesday into early Wednesday, shaking off a disappointing ZEW survey as the market begins to focus on Friday's EU summit. All currencies are up against USD except for CHF The subscribers' video dissects below shows how the Premium Longs in EURUSD made use of the 4 multi-sector analogs (MACRO, TECHNICAL, TREND, FRACTAL) as well as why long DAX was a persistent call for WhatsApp Broadcast Group relative to the DOW30 and NASDAQ. So far, 4 of the 5 Premium trades are currently in the green. 

The aim of the summit is to agree to an EU recovery fund that includes loans as well as grants. Lately, Germany has signaled it wants a deal and there are signs the Netherlands won't block it. That's probably enough to get it over the finish line but in the eurozone nothing comes easy.

The Bank of Canada kept rates unchanged at 0.25% and for the first time explicitely added rates would remain unchanged until inflation returns to the 2% target at a sustainable level. While that may sound CAD-negative, it is a clear message that rates will not head to zero, which helped the loonie alongside stabilizing oil.

Combined with low virus case numbers and a diminished risk of debt monetization, the case for the euro is improving. Asset valuations in the eurozone are also compelling but must be weighed against perpetually disappointing growth and unending political risk. Once again, watch Ashraf's Premium video (posted above) on the 4 crucial analogs (macro, technical, trend and fractal) to grasp how he re-insisted on buying EURUSD since mid April. 

The rally to the key 1.14/1.15 zone signals that the balance could tip in the short term, especially with the US and UK facing their own set of risks. In FX you don't need to be impress to make gains, you just need to be more attractive than another currency.

A break higher for the euro could kick off a wider round of US dollar weakness. Tech rebounded Wednesday but at current valuations, it's tough to envision it attracting capital flows and Treasury yields are back near the COVID lows.

In short, if the euro was ever going to make a big break higher, now would be the time. The technicals in the day ahead will tell the story.

In the nearer term, the USD shifts to the Beige Book later today. Fed Presidents Mester and Bostic have highlighted a leveling off in US high-frequency data. That was backed up by a small dip in the New York Fed's weekly economic index on Tuesday. If that language finds its way into the Beige Book, the dollar could slide.


Latest IMTs