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Be Selective in EUR Exposure, Pockets of Strength Found

Be Selective in EUR Exposure, Pockets of Strength Found

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Euro recovering broadly as ECB conducts covered bond purchases.

- Traders await stress test results due Sunday afternoon.

- Euro Faces Economic Headwinds with Weakening German, Euro-Zone PMIs

As the US Dollar faces its own bout of uncertainty and vulnerability, there remains ample room within the downtrend contained by the May and July highs in EURUSD for a further rally up towards $1.2995, the mid-September swing high.

Perhaps providing a cushion to the Euro in the near-term is stretched market positioning. Even as EURUSD has recovered nearly 300-pips off of its early-October low, the futures market remains saturated with aggressively short speculators. Non-commercials/specs held 155.3K net-short contracts for the week ended October 14, an increase from the 146.2K net-short contracts held a week earlier. Latent potential for a short covering rally exists; it just needs the right catalyst.

Read more: The US Dollar’s Moment of Vulnerability

--- Written by Christopher Vecchio, Currency Strategist

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