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EUR/USD – Will The Rally Ever Stop?
Over the past four trading days the EUR/USD is up an astounding 700 points or seven big figures. That’s one of the sharpest rallies on record and is emblematic of just how wrong footed the market has been on the pair. The spike higher has been fueled by lack of liquidity, risk aversion flows and the merciless momentum of the algos which have wreaked havoc with many long term positions.
The truth of the matter however is that fundamentally nothing has changed. The ECB are still on divergent monetary paths and the economic performance of US is far superior to that of Europe. No one that may matter in the short run however as currencies will continue to trade off equity flows. Once the risk aversion correlation establishes itself, it takes a while to go away. So the EUR/USD may indeed squeeze higher, but any further moves are likely to be more contained as most of the technical damage has already been done.