EUR Struggles at Lofty Heights?

Yesterday, EUR bears were eyeing 1.30 as one of their downside objectives, a day later and trying to remain true to their convictions, that target has now become 1.31, courtesy of a stronger US retail sales print that speared risk-aversion strategies. So far this morning, the early European session has prodded and teased the ‘many’ that have been adding to their short positions in this “risk-off” environment over the last twenty-four hours. EUR breaking that psychological 1.30 briefly yesterday morning had many CFTC speculators adding to their positions. These “specs” are undoubtedly still long those dollars despite this subsequent reverse in attitude.

Not helping their plight is this morning’s data. However, for the neutral position keeper, with a hint of bear within them, this price action is “priceless.” This morning’s Spanish Bill auction is helping to improve risk sentiment. The better than expected auction saw Spain selling +EUR3.178b T-Bills versus the +EUR2-3b planned. Selling more paper has managed to temporarily prompt the yield on 10-year product to ease from the psychological +6% watermark. Despite being a good auction for appetite, for the EUR and for the ECB, it’s Thursdays Spanish bond auction that holds more substance, especially after the sluggish demand earlier in the month.

The second and final reading of EU inflation tends to be a boring affair, however, last months data has broken the mould. The March reading saw the final y/y headline rate revised higher from a ‘flash’ +2.6% to +2.7%, with the breakdown showing that the ‘core’ measures are also ticking higher. To date, Central Bank’s have been paying close attention to the pass through effect of higher energy prices, now, the ECB has sticky inflation to worry about. With prices staying elevated for a fourth consecutive month is likely “to cement the debate over maintaining a steady hand and strengthen the hawkish case for starting to discuss exit scenarios.”

This is a stretch for bullish reason to want to own EUR’s, but if you include the auction and a stronger German ZEW print of 23.4 for this month, it does provide support to see the EUR test this week’s highs. Investors can expect some strong resistance ahead of the figure topside from Middle east interest, because many believe that higher EUR yields remain a weight on the ‘single currency.’

Later this morning, it’s Carney time. The market expects BoC Governor Carney to be “slightly hawkish” in his policy rate announcement in a few hours. With the FED reiterating their commitment to low rates for some time last week, historically, Canada will not get too far ahead of the Fed on rates. No rate change is expected (+1%), and any dovish tone would obviously force a dollar rally outright. However, if Carney is considering bringing forward the time for interest-rate increases the loonie will find support, even at these lofty levels. The accompanying statement may say that the economy “will reach full output sooner than the bank forecast earlier,” indicating a quicker timetable for interest-rate increases and putting upward pressure on near-term yields. The market has certainly got itself long the loonie after the robust employment number earlier this month and any CAD rally will be seen as an opportunity to cover some of this short dollar position ahead of the Spanish auctions on Thursday.

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EURO Patience for Grind Lower

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