EUR’s muted reaction to weaker than expected Eurozone July inflation indicates the currency may have reached oversold territory.
Thus in the absence of a strong positive NFP surprise, we look for it to correct higher today.
Indeed, speculative short positioning, as shown by IMM data, continued to rise towards multi-year highs.
Looking ahead, it will be about today’s US labour data release to direct the Euro’s short-term trend. Investors’ expectations for a constructive payrolls reading have been rising on the back of the most recent better than expected growth data. However, given high expectations it will be difficult to drive US short-term rates higher unless data surprises considerably higher.
As a result to the above outlined conditions we argue against selling EUR/USD around the current levels. From a broader angle, however, rallies may still prove a sell.
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