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While it is tempting to say the euro strengthened, I feel it was more a factor of US dollar weakness supporting some of the risk currencies. Significant moves in the bond markets resulted in some USD outflows and this hurt the greenback. A few disappointing economic readings including retail sales also didn’t help the situation.
On the euro side it was all about Mario Draghi as he spoke in Frankfurt and said he expects the recovery to resume despite reinforcing downside risks to the economy. Draghi also said the ECB stands ready to take additional action if needed, but this is nothing new. Overall, EUR/USD spiked to a high of $1.2887, coming within touching distance of the $1.2900 handle. However, the rally seems to have stalled and the question now is whether yesterday’s burst is a selling opportunity. There are a couple of technical points to look out for starting with the 50-day moving average which kicks in around $1.2890.
Additionally the 23.6% retracement of the May to September slump comes in at $1.2851 and will also act as resistance in the near term. As a result I am looking at selling the pair on a retest of overnight highs in the $1.2900 region, with potential stops placed a touch above the 38.2% retracement of the move at $1.3069. I will look at targets once the trade is triggered.