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EUR/USD – Still a Buy?
Its been five trading days since we’ve seen a rally in EUR/USD. Despite strong Eurozone PMI numbers, euro continued to fall as U.S. yields ticked up at a faster pace than German yields. Under normal market conditions, fact that the Eurozone PMI printed at its highest level this year should have driven EUR/USD up 50-70 pips but instead we saw a mild rally that fizzled during the North American trading session. Part of that had to do with better than expected U.S. data but at the end of the day, the currency is taking its cue from the yield spread. Tomorrow’s German IFO report is expected to be euro positive but investors will be far more interested in comments from ECB President Draghi. We still believe the EUR/USD is near a bottom but it may drop to its next support level between 1.0815-1.0825 before stabilizing – anywhere below 1.0840 would be a great place to consider fresh longs.
Taking a look at the monthly chart of EUR/USD, there’s significant support between 1.0815 and 1.0825, so if the currency flushes lower, a great place to add to EUR/USD longs would be near 1.0835. If it clears 1.0910, we should see a stronger move to 1.0950.