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EUR/USD – How Far Will The Short Squeeze Go?
Euro staged a massive near 200 point rally today, breaking both the 1.1100 and the 1.1200 handle. The ostensible reason for the rise was the was sharp drop in US yields as traders began to back away from expectations of Fed September rate hike. The recent devaluation in the yuan has spooked the market which viewed the event as a sign that Chinese economy is starting to crater, and that in turn has led many traders to conclude that Fed will postpone any action.
But the slowdown in China is likely to hit Europe just as hard -- maybe even more so -- as Germany’s vaunted export growth is likely to come to a screeching halt as demand form the Middle Kingdom dries up. That suggests that today’s action is much more likely a function of a massive short squeeze rather than the starts of a sustainable rally and therefore the 1.1200-1.1300 are is likely to find serious resistance for the pair capping any upside from here.