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The EUR/USD which made a near 300 pip round trip in post Italian referendum trade yesterday, first dropping to a low 1.0504 and the spiking to 1.0798, was much calmer today but remained near the two day highs and within striking distance of the 1.0800 figure.
yesterday’s price action suggests that the pair may have made a near term bottom and could continue to squeeze higher even possibly towards the 1.1000 figure especially if ECB President Mario Draghi offers no definitive calendar extensions to the QE program.
Ultimately the euro may be headed to parity as the policy divergence between the Fed and the ECB begins to kick in. But for now the market is still looking for the Fed to affirm its intention to tighten continuously in 2017 rather than the one-and-done December hike that is already priced into the market. Meanwhile, if the ECB simply sticks to its current QE targets and doesn’t extend or expand the program, the short squeeze in the EURUSD could continue as expectations are adjusted on both sides of the trade.
For now the 1.0500-1.0550 level is a firm bottom while 1.0900 is the nearest term top for the pair.