Sell the EUR/USD Rate (EUR/USD) on Strength say BMO Capital as Well-Worn Levels Remain in Play
Any strength in the EURUSD exchange rate should be sold suggest strategists at BMO Capital in a note to clients.
Foreign exchange strategists at BMO Capital have suggested traders sell the Euro on strength.
The note comes at a time of renewed Euro weakness with the shared currency failing to find any sustained lift beyond the ECB's September policy meeting.
In a note to clients analyst Gregory Anderson says the Euro should remain pressured this week as, “the door is still wide open to yield-suppressing QE tweaks over the coming months, given a number of factors.”
The call comes despite the squeeze on EUR shorts and bullish fixed income positions following last Thursday’s less-dovish-than-expected ECB communications.
“We would look for opportunities to sell EURUSD above 1.1300 this week. However, such positions will require patience. Partially as a result of its rangy nature, EURUSD has no strong fundamental drivers at present, and the market’s preferred short-EURUSD strategy is being hindered by the lack of downside in some EUR rates,” says Anderson.
There are very few ECB speakers scheduled this week, and BMO Capital would only look for a break of 1.1100 support if weak industrial production and ZEW data collide with persistent USD strength.
At present it appears that the trigger for the trade - a EUR/USD above 1.13 - looks remote as the Euro has simply failed to find any upside traction.
At the time of publication the Euro to Dollar exchange rate is seen trading at 1.1223 after a gauge of German investor optimism fell short of forecasts, highlighting uncertainties surrounding Europe’s biggest economy.
The ZEW survey showed that investor morale didn’t weaken but it didn’t improve either, holding steady at 0.5 in September, below forecasts of 2.5 and well below its long run average of 24.1.
The Euro is pointed lower as a result.
"Appetite for the US dollar is a major explanatory factor in the price swings across the board. Trend and momentum indicators on an hourly EURUSD chart are flat-to-negative. Intra-day resistance is eyed at 1.1248 (major 38.2% retracement on August 31st to Sep 8th rise), 1.1279 (minor 23.6%) and 1.1295 (ascending channel top)," says Ipek Ozkardeskaya at London Capital Group.
On the downside, the support is eyed at 1.1200 (50% retracement / 200-hour moving average / major 61.8% retrace) before 1.1171 (minor 76.4%) and 1.1123 (Aug 31st low).
There is a mild drift lower on the euro as a slightly negative candle was formed yesterday.
The euro has also now made it three days in a row of lower highs with the latest at $1.1260 and the move is putting pressure on the near term support around $1.1200.
"For now the support remains intact with the small gains that we have seen overnight. However on a medium term basis the momentum indicators are still very neutral and hardly giving any indication of direction," says Richard Perry at Hantec Markets.
Perry argues breach of $1.1200 which has been tested on a couple of occasions now would open $1.1120 but the euro shows little real sign of any decisive bearish intent.
