A Short Story about the EUR/USD

This morning, the EUR/USD was a bit mellower after Tuesday’s incredible run higher. EUR/USD settled in a sideways range in the upper half of the 1.24 big figure. The euro showed still remarkable resilience given the risk-off sentiment on most other markets.

The EUR touched a low of1.2448 in early trading yesterday in Europe, but from there, any dips were still used to pick up the single currency. So, the feeling was confirmed that several players had still some short-covering to do in the run-up to the ECB announcement of its new crisis tactics. As always, there were the usual mixed messages on the political and other hurdles hindering a solution for the debt problems in Greece and in other peripheral EMU countries.

The pressure on the euro grew a bit at the onset of the US trading session but the euro clearly didn’t fall off a cliff, indicating that Tuesday’s rebound was not just an erratic swing in a thin market. Trading volumes were also said to be substantial.

In the afternoon, EU’s Juncker said that there will be no decision on Greece before October. This is an additional factor of uncertainty that won’t be solved anytime soon, but it didn’t harm the euro. On the contrary, what can’t go down must go up and EUR/USD even jumped for a retest of Tuesday’s high.

Weaker than expected US new homes sales and a speculation on a soft tone from the Fed minutes were said to be behind the move. However a new break higher was not yet possible with the Fed minutes still to come.

The minutes of the July Fed meeting were soft as the Fed indicated additional monetary stimulus would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of economic recovery. This keeps the door wide open for Fed action at the September meeting. Of course, the Fed has still to make its assessment on the recent eco data, but the signal was strong enough for markets to adjust positions for a higher probability of Fed more Fed stimulus. Treasuries jumped higher and the dollar was sold across the board. The EUR/USD moved up from Tuesday’s top and reached an intraday top at 1.2538, to close the session at 1.2529, compared to Tuesday’s close at 1.2473.

In early Asian trading this morning the China HSBC manufacturing PMI dropped further below the 50 mark (47.8 from 49.3), indicating a further cooling in activity in the country. However, from a risk point of view, this figure was fairly neutral as markets see this as raising the chances for more policy stimulation in China, too. EUR/USD reached even a minor now high in Asia this morning.


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