EURUSD To Stay Well Contained Into Weekend

EUR/USD is in a near term stalemate going into the weekend, with the US non farm payrolls release set to have a modest impact on the pair as the EUR focus rests squarely on the Italian referendum ahead. The polls are already suggesting a No vote will prevail, but it is hard to see how much of this is priced in to the spot rate, with the USD perspective so strong, and heavily reflected in the pair given the USD index weighting (close to 60%). It is clear however, that 1.0550 is proving a tough nut to crack, below which lie some heavily defend exotic barriers at 1.0500 and the Dec 15 low at 1.0456.

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It is also a case of having travelled a long way down (in such a short period), though the oversold status is proving hard to correct in such a USD hungry market. A Yes vote this weekend could prompt a move up to and through 1.0700, but gains are likely to be limited, with the prospect of QE extension from the ECB pencilled in for next March and populism on the rise in EU-land also.

EUR/USD dips below 1.0600 again; USD/JPY eyeing 113.00

Tentative moves in some of the key majors, with EUR/USD getting pressed lower into the mid 1.0500’s again in tandem with a USD/JPY move through 112.50.

Month end flow suggests some USD selling into tomorrow’s London fix, but broader sentiment remains that of using any USD dip to reload on longs. EUR/GBP buying also looks to have receded a little, having stalled comfortably ahead of 0.8600.

Buying of Europe (central bank) is usually transacted over a number of days, so we do not rule out sporadic spikes in the cross rate near term. Beyond this, the downtrend remains very much in place, but little room conceded on the upside as yet, so we still remain wary of a short squeeze either side of the Italian referendum. AUD/USD is still eyeing .7500+, with NZD/USD hovering below .7100.