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EURUSD – Back to 1.2500?
The EUR/USD saw a steep selloff today as rumors circulated in the market that at least 11 banks will likely fail the ECB bank stress test results due this Sunday. The pair drifted all the way to 1.2637 by end of day. However, the decline today could pale in comparison to what could could happen tonight. The worries about the financial sector are overblown as the banks in question are small regional players and are unlikely to have much impact on the European banking system. The much more important factor is economic growth and to that point tonight’s flash PMI data will provide the most accurate reading of conditions on the ground. If PMI show a steep decline and more importantly if the data shows that Germany has moved into contraction then EUR/USD could retest its lows at 1.2500
The drop in EUR/USD below the 1.2650 level now opens a run towards the 1.2500 double bottom test and only a move above the 1.2800 figure relieves the downward pressure.