Euro’s (EUR) recent run higher towards 1.12 may have run its course for now and technically, there are signs to suggest that a pullback may be on the cards, OCBC FX strategists Frances Cheung and Christopher Wong note.
RSI shows signs of turning lower
“The move higher in recent weeks can largely be attributed to the EUR playing catch up to gains seen in other FX amid a softer USD environment while EU-UST yield differentials narrowed further (-153bps vs. - 200bps in Apr). The solid current account data for the eurozone – was also one catalyst - monthly current account surplus for Jun at EUR51bn was the highest on record. The last all-time high was back in Jan 2015 when it was about EUR42.75bn surplus.”
“Moreover, ECB officials have not been outright dovish in the last few weeks. Recall last Fri, Holzmann said a Sep cut is not a foregone conclusion while Chief Economist Lane said that a return to 2% inflation target is not secure yet. And markets were probably getting excited to price in new-found dovishness in Fed, and the USD. Finally, on growth, Euro-area PMIs have yet to show much improvement. Manufacturing PMIs in Euro-area, Germany slumped further into contractionary territory while consumer confidence lags.”
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