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EUR/USD Aiming for 1.30?
The EUR/USD raced to a high of 1.2886 today on the back of the steep decline in U.S. yields. Eurozone rates also fell but their moves paled in comparison. Both the U.S and Eurozone have their respective troubles but risk aversion has driven investors back into Treasuries. U.S. stocks collapsed today and while softer U.S. data can be blamed for part of the move, the sell-off was also triggered by concerns about global growth and growing fears about Ebola. Unfortunately these fears could intensify before they ease which could lead to further near term weakness in the dollar. Based on the chart above, which compares the performance of the EUR/USD (white line) and the spread between German and U.S. 10 year yields (yellow line), a move towards 1.30 appears likely.
While the initial break of 1.28 failed to broken in a meaningful way, we believe that another probe above that level is likely. As the 61.8% Fibonacci retracement of the 2012 to 2014 rise, 1.2800 is a very significant technical level. If the currency pair closes above that level, there is no major resistance until 1.30, although 1.29 could be a temporary stopping point. However if EUR/USD fails to recapture the 1.2800, a drop back towards 1.26 is likely.