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Euro – Back to pre ECB Lows?
The euro started the year on the wrong foot making a massive wick yesterday and dropping further today as it is down by more that two big figures in 2 days. The pair may be finally starting to respond to interest rate differential pressures as the short squeeze post ECB finally runs out of gas.
The spread between Treasuries and bunds continues to hold and as long as it does not not compress much the euro will likely remain under pressure as basic fundamental flows finally take over from technical factors that have dominated trade for the past month. The key to the near term direction of the pair will be this Friday’s NFPs. If the market sees another blockbuster report of 250,000 or more it will likely begin to price further rate hikes by the Fed which in turn will widen the Treasury/Bund spread and drive the pair lower. If however the labor numbers are weak its back to the 1.0900s for the unit.