Forex traders continue to buy euros, and our forex positioning data gives us forecasts to expect further EURUSD losses through the medium term. Yet we see that the number of currency traders long the EURUSD fell precipitously following the forex pair’s noteworthy breakdown earlier this month, and we have since been arguing that we may see a short term EURUSD rally before further losses.
The once resilient Euro zone economy is slowly succumbing to the downward pressures of a strong euro, a slowing global economy and tight credit conditions. Looking ahead, I expect the EUR/USD to fall further and test 1.40 dollars per euro.
Violent intraday swings in the majors hasn't done much to clarify the bigger picture for most pairs. The exception is the EURUSD, which is nearing the intial bullish target we set out a few days ago. A strong Yen also commands attention (major reversal?).
Inflation is quickly building an argument for the Bank of Canada to entertain the possibility of rate hikes in the near future – or at least defer any plans to lower the benchmark from its current 3.00 percent level. This data initiated a decline in USDCAD that eventually accelerated to a nearly 150-point drop with help from rising oil and a disappointing round of US data.
The US Dollar has pulled back across the majors this morning as the Conference Board's US leading indicator fell more than expected at a rate of 0.7 percent in July, marking the sharpest drop since the credit crunch began at the end of last summer.
Currency Strategist
Last week, the dollar closed its fifth consecutive week in the green – the currency’s strongest run in more than two years. However, this rally may soon run out of steam if the Fed doesn’t boost the greenback’s appeal.