EUR/USD bulls back in control (despite minor Brexit headline set-back to 1.1608) - target set cloud base 1.1672

• EUR/USD has been whipsawed on Wednesday, the extremes are being tested. 
• The European markets were selling down towards the 1.1530 level with a low at 1.1540.
• The pair then bounced to 1.16 and shot all the way through to 1.1639, (200-hr SMA), on positive Brexit headlines that took cable on a rip and knocked the safe haven dollar down from 95.66 to 95.09.

EUR/USD has since been oscillating between 1.1626 and 1.1608 - (a recent Brexit headline has helped the dollar to bounce back to 95.27). Volatility on the FX space has increased and the euro is being tugged and pulled between the extremes. The dollar was unable to make a higher high at 95.70 and is showing its fragility on today's moves. The euro, on the other hand, has been subject to EM pain where the ZAR and TRY had been much lower in European trade. However, both currencies have rallied as the dollar falls off the cliff edge in late London/early NA trade. 

Contradicting Brexit headlines  - something we should be used to now

The latest developments just saw EUR/USD tumble to a fresh NY low of 1.1604 from 1.1629 whereby a German government spokesman said that the government position on Brexit was unchanged and that the government has full trust in Barnier - (Cable fell from 1.2957 to 1.2876). 

This followed earlier reports that Germany and UK were said to drop key Brexit demands. Bloomberg came with that news in reports that both the British and German governments have abandoned key Brexit demands, citing people familiar:

"The British and German governments have abandoned key Brexit demands, potentially easing the path for the U.K. to strike a deal with the European Union, people familiar with the matter said. The pound rose....Germany is ready to accept a less detailed agreement on the U.K.’s future economic and trade ties with the EU in a bid to get a Brexit deal done, according to people speaking on condition of anonymity because the discussions are private. The U.K. side is also willing to settle for a vaguer statement of intent on the future relationship, postponing some decisions until after Brexit day, according to an official who declined to be named."

Meanwhile, there had also been some dovish rhetoric from Fed speaker Bullard putting a spanner in the dollar bull's case:

• Markets generally more dovish than latest FOMC forecasts.
• More hiking could unnecessarily raise recession risks.
• Yield curve and inflation outlook is better guide than FOMC.
• Phillips curve failure increases the importance of market signals.
• Repeats that Fed should hold off on further hikes.

We will now wait to hear from centralist leaning hawkish of late Fed Williams and then both Kashkari and Bostic, (doves).  Another tool in the works for bulls could be that recent  Atlanta Fed GDPNow US GDP tracker that has come in lower on trade data - Yesterday the Atlanta Fed GDPNow tracker for Q3 was lifted to 4.7% from 4.0%. Today it's back down to 4.4%.

However, yesterday's manufacturing PMI was a big beat which should be recalled and there is still plenty of time ahead of GDP Q3. This week's NFP data will be key for the near-term trajectory of the dollar. However, and perhaps more critical are the EMs. The ZAR, mentioned above, is on the way to the 1.16 handle, a level not seen since March 2016. The domestic backdrop there is not good and Oct 12th will bring a review in from Moody's that last warned in March that the nations could be placed on a negative outlook - the bond market is taking a big hit. 

Bulls have the upper hand, for now

EUR/USD bulls may have the upper hand for now as the dollar pulls back, but it is hard to see a sustained recovery with the number of risks out there should remain dollar supportive, at least in the short term. However, a real risk for dollar bulls will be the inclination in the market to sell rallies on doubts over the Fed's rate hiking path. A wall of dovish comments from Fed speakers ahead of the FOMC meeting will be a high one for bulls to get over. Given Powell's tint of dovishness at the Jackson Hole, this FOMC around could well be the circuit breaker in the dollar's trajectory.

EUR/USD levels

There is a strong bullish case building up in EUR/USD with two failed attempts at 1.1530 and 1.1538 and long bullish wicks as the bulls come in hard protecting this area. 1.1639 was traded at the 200-hr SMA and the price is building again after this brief Brexit headline spike lower to 1.1608. Bulls are in control and targets are set up at a thin could base of 1.1672 and daily cloud top up at 1.1681.