EUR Traders Deflated

Where is the love? The Fed and China are disappointing risk lovers this morning. The eternal optimists expected more, the cynic and the most jaded of traders continue to sit on their outright short EUR position, waiting for systemic risk to kick in. The FOMC has officially disappointed the market. The minimum of expectations required the Fed to extend the “Twist,” they did, +$267b of it until the end of this year. However, they did not change the structure of the program to include MBS and did not announce new QE. Risk needed that, instead the market gets “twist-light.” Helicopter Ben is not the optimist, he and his policy makers cut their estimates for growth in the US this year and expects little progress on unemployment during H2. However, the Fed has left the door open for further quantitative easing somewhere down the line.

Perhaps China could lead the way? Nope, data last night will not be giving risk lovers a “warm and fuzzy feeling.” China’s HSBC Flash PMI fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May. The most frightening part, the new orders index component fell to 46.8 from 48.4 last month, a three-month low. It seems that the Chinese government attempt to spur growth has yet to find some traction. Is the Euro disease spreading? The bearish outlook on exports has the market looking for another PBoC rate cut. China is not the only guilty country this morning. Some less than inspiring German PMI numbers are adding to the downbeat tone on the regional trading handover. Their PMI index fell to 48.5 this month from 49.3 in May.

The Spanish government came, they delivered and they went. That was the Spanish +EUR2.22b short bond issues this morning. It was the first auction since the Spanish bank fix and all eyes were on her, wondering if there would be a bid for her product. Offloading all issues proves that Spain retains its access to capital markets. However, it still comes at a steep price. The next concern is sustainability. Steep prices are not eternally affordable, it’s no wonder they require a more pro-active ECB. Will the beginning of tomorrows two day Eurogroup meeting give us a sign? Most likely not. With Euro business activity decreasing for the fifth straight month is increasing the likelihood that Draghi and company will have to cut key interest rates to stimulate growth. They next meet in two weeks.

North America steps it up on the data front this morning. With forex enthusiasm taking a beating, this data is not expected to effect that. The bigger picture waits for the Euro meets for direction. With whipsaw price action being persistent, in a tight intraday trading range, is doing little for the record EUR short positions. Technically, the markets bias remains with the bulls who favor setting long positions outright on corrective dips. The tech analysts have indicated that the market has made three attempts to break above 1.2748, a 38.2% retracement of this years range. Are we to get a sustained move? Through the psychological top barrier the market can expect more outright stop-losses to be triggered. Perhaps its the true opening for the 1.28 handle move? The percentages say no, they expect the lemming short systemic driven trade to triumph!

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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