EUR/USD: bulls eye the 1.17 handle on a squeeze on built up short positioning, but plenty of political risk to play out yet
|- EUR/USD downside running out of steam on built up short positioning.
- 1.1720 as first pivot to target ahead of 1.1755 as the 23.6 per cent retracement fibo of the 1.2556 to 1.1508 2018 fall.
On lighter desks ahead of the independence day holidays, EUR/USD has been on the backfoot at the start of this week following Germany's interior minister threatening to resign despite most analysts expecting Merkel to survive the clash with the CSU.
The German Chancellor said the free movement zone could collapse completely after Italy refused to sign up to her migrant policy during last week’s EU Summit. There has been severe backlash over Merkel's EU migration talks. Italy is refusing to sign up to her policy while her coalition partner, Horst Seehofer, has been threatening to pull out of their shaky government due to Ms Merkel's immigration plans, sending her party towards the "brink of collapse".
Markets are awaiting the outcome of crunch talks with Mr Seehofer today "in hopes of reaching an understanding", in a bid to save her government after the CSU leader has warned resigning from his cabinet post.
Limited downside potential
From a positioning perspective, EUR longs dropped for a tenth consecutive time according to the CTFC Commitment of Traders Report though last’s week fall was modest in comparison to the previous week, as noted by analysts at Rabobank who argue came about in reaction to the message from the ECB that rates may not be raised until at least summer 2019. Therefore, with plenty of short building up, there is the potential for a short squeeze and eyes will be on US yields, (lower/caped) due to demand for US Treasuries in soured risk-off markets.
EUR/USD levels
The broader range remains between 1.1500 and 1.1850 with 1.1720 as first pivot to target. The medium-term target on continued failures to the downside stays with 1.1755 as the 23.6 per cent retracement fibo of the 1.2556 to 1.1508 2018 fall guarding the 30-day upper Bollinger band currently at 1.1819. On a break of 1.1855 eyes will turn to 1.20/1.21. Bears need to get below 1.1508-10 May-Jun lows, 1.15 barriers/ stops while the 1.1448/1186/0863 are key lower down as being the 2016-18 rising Fibo levels. Also, the 200-week moving average is at 1.1435 while 1.1186/1.0814 comes as the 61.8% and 78.6% retracements).
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