Euro Blasts Through 1.1100 Will Short Covering Persist?

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Market Drivers July 27, 2015

Euro takes out 1.1100 as IFO better
Commdollars lag
Nikkei -0.95% Europe -1.02%
Oil $47/bbl
Gold $1103/oz.

hope but
Europe and Asia:
EUR IFO 108 v. 107.6

North America:
USD Durable Goods 8:30

The euro blasted through two big figures in a vicious short squeeze at the start of the trading week before finally settling down for some profit taking by mid morning European dealing today.

The pair hit a high of 1.1114 – more than 150 points higher than the close of trade in NY on Friday – in frenzied early morning European trade boosted by better than expected IFO readings. The IFO survey beat forecasts printing at 108.00 versus 107.6 but the euro was already well on it way higher prior to the report and the data actually created the final surge higher before EUR/USD finally retraced some of its gains.

There was no specific trigger for the move today, but rather the general sentiment that the Greek situation clearly no longer poses an existential threat to Eurozone with investors encouraged by the fact that EZ officials appear to be talking seriously not only about the bailout details but also about the longer term structural needs for Greek debt reprofiling.

As to the IFO, the resolution of the Greek saga also provided a boost in sentiment to German businesses with current assessment rising to 113.9 v. 112.9 expected with most participants noting that domestic demand remained strong. Survey takers however noted that export demand is expected to cool a bit as slowdown in China and waning impact of low euro would likely temper any growth going forward.

Despite the rise in the euro the other majors remained decidedly more muted with com dollars showing no signs of life as commodity prices remained near their lows while cable traded in a very tight range of 1.5490-1.5545. In short it was a one man show for the euro today and it will be interesting to see if the North American session extends the short covering covering move.

The only report of note today is the Durable Goods report due at 12:30 GMT, The market expects a bump to 0.4% from 0.0% the month prior. An improvement in the data could give dollar a boost later on in the global day, but if Durable Goods misses the mark once again the euro squeeze could continue well past the 1.1150 level as traders will begin to speculate that Fed may wait until December meeting before starting to normalize rates. The SEP v. DEC debate is the key driver to dollar price action over the near term and if the odds start to tilt away towards the end of the year the greenback could see further weakness against the euro and for that matter the yen.

Boris Schlossberg
Managing Director

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