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Is EUR/USD Setting Up for a Short?
The vicious one way move in the EUR/USD has been due to technical rather than fundamental factors. As we wrote earlier today, “Yesterday’s FOMC minutes made it relatively clear that barring serious exogenous shocks, the Fed is likely to begin normalizing rates at its December meeting. But the tone of the report left enough of a doubt to stop any further progress in the dollar rally. With dollar longs greatly overextended the market set itself up for a short covering rally in the majors which quickly turned into serious short squeeze by midday Asian trade.”
The rally in EUR/USD could extend towards the 1.0800 level but after that the pair faces stiff resistance and is likely to come back for at least a re-test of the key 1.0600 support, so any further probes higher are likely to provide better entries for shorts.