EUR/USD May Target Mid-$1.1500s; USD/JPY Best Bet for USD Gains
- EURUSD double bottom may target mid-$1.1500s.
- USDJPY positioning favors further gains on USD recovery.
While the USDOLLAR Index has recovered modestly from the February range low, the rally hasn't been consistent across all USD-pairs. Indeed, while AUDUSD, GBPUSD, and USDJPY all move favorably for the greenback, EURUSD has stood out and continues to press towards its highest levels in over two-months. Undoubtedly, there is evidence of an unwind to the ECB's QE trade.
The ECB's QE trade has consisted of three components in 2015: a weaker Euro; higher bond prices/lower bond yields; and higher equity markets. This week especially, we've seen that trend reverse, and quite quickly: the Euro has rallied; German yields, especially at the long-end, have shot higher; and equity markets across the Euro-Zone have slipped.
There is thus a split in the US Dollar's prospects, depending upon where you look. In EURUSD, the potential for a move into the mid-$1.1500s seems possible given the potential double bottom nature of the recent consolidation breakout, boosted by the extreme Euro short positioning seen in the futures market. On the other hand, if the US Dollar is to continue its recovery after the shelling it took over the past two weeks, then USDJPY may offer the best opportunity, given that the market is the least short the Japanese Yen since Q4'12 - right before Abenomics began and the Yen's meltdown commenced.
See the above video for technical considerations in EURUSD, GBPUSD, AUDUSD, and USDJPY.
--- Written by Christopher Vecchio, Currency Strategist
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