Long-term trend suggests additional euro strength

Further upside recovery for the single currency cannot be ruled out, since the bounce from the 1.3300 level in the aftermath of the ECB rate cut has been strong.

With EUR/USD now back above the 1.35 level and testing the 50-day moving average, a move through the 1.3540/50 levels would help cement its comeback. Downside support comes from the 1.3415/20 metric.

Overall, the longer-term trend from the June 2012 lows puts the bias on a stronger euro. Given the amount of interest in the German current account surplus lately, the narrowing and failure to meet expectations in the composite euro area current account surplus indicates that net direct investment continues to post outflows. The euro area current account surplus declined to a seasonally adjusted €13.7 billion in September, from €17.9 billion in August.

The US has to some extent been pinning its recovery hopes on resurgence in housing demand, and data from the US today includes the NAHB housing market index. This is a sector that has been coming off the boil recently: existing home sales in September were lower than expected. An increase to 56 is expected today, however.

Spot FX EUR/USD chart

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