EURUSD continues to grind lower, tested 1.27 before bouncing

Market Review

The market yesterday was again quiet and for the main part of the afternoon EU/US cross over caught in a very tight range. New Home Sales posted a number in line with the best number since the financial crisis, and although this initially led to some selling pressure coming in to the S&P due to fears of a rate hike, participants rationalised and found one decent housing number will not be moving the Federal Reserve’s stance in any way; hence the equity index went bid and eventually ended the session almost 20 points higher. The EURUSD was already on the back foot with data in the morning being mixed, and positive reinforcement from the US economy exaggerated the move lower, and eventually broke the 1.28 handle. The Department of Energy number was a lot more bullish than participants expected yesterday and the commodity went on to hit the entry point perfectly before retracing some 100 ticks – although the first target was an optimistic 130 ticks away as we believed in a larger move back.

Today's Fundamental View

This morning the EURUSD has continued to grind lower from yesterday’s sell off, and briefly tested the 1.27 handle before bouncing to just above S2. The move can be traced back to continued poor Italian Retail Sales which has led to the euro weaken further, at the same time as the dollar index is at its highs. Today’s afternoon session is set to see more volatility with Durable Goods Orders and Initial Jobless Claims being the key movers. Last month saw the Durable Goods number ballooning as Boeing saw a record inflow of new orders, and as Newton found out; what goes up, must come down. This months potential record negative number at - 17.7% expected will not affect the market in the negative manner many think, and overall it should be ignored. The core number should be the one which catches everyone’s attention, and any deviation from the expected will have a straight forward reaction in the market. The initial jobless claims number has been posting a reading around 300k for a continued period and we expect this to continue. Anything relatively in line will be positive for the market. Today’s strategy is long equities, USD as well as crude oil, although the treasury direction should be lower.

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine as well as US data being a key catalyst for movement today. Monetary policy comments from the US will carry weight.