Where are the Euro Bulls?

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Market Drivers March 17, 2015

RBA Minutes reveal that the CB considered rate cut
BOJ keeps policy same
Nikkei .99% Europe .09%
Oil $43/bbl
Gold $1153/oz.

Europe and Asia:
AUD RBA Minutes
EUR ZEW 54.8 vs. 58.9

North America:
CAD Manufacturing Sales 8:30

USD Building Permits/Housing Starts 8:30

Its been a quiet rangebound night in the forex market with most major currencies content to trace out narrow ranges as few traders wanted to assume directional bets ahead of the FOMC meeting this Wednesday. The euro saw some early buying jumping above the 1.0600 level but the rally fizzled and the pair quickly dipped below that mark in morning European dealing.

As we’ve noted earlier the 1.0400-1.0500 zone remains key support for the pair and after relentless liquidation over the past several months it appears to be finally stabilizing at these levels. Although the deck is clearly stacked against the unit with US and EZ monetary policies diverging broadly we continue to believe that the pair may be due for a short covering bounce sooner rather than later.

One key problem dollar bulls right now is that sentiment is wildly skewed. Every day brings a new ever lower forecast from the banks for the EUR/USD with some already predicting exchange rate of 8000 cents by 2017. The problem with such linear thinking in the forex markets is that it is almost inevitably wrong. Just as we could find no EUR/USD bears when the pair was in the 1.5000s so too now euro bulls are non-existent.

Such lopsided sentiment typically set ups for sharp reversals, although perhaps we haven’t fully reached the bottom yet until the Economist puts the currency on the cover, wrapped in bandages with headline screaming “the end of Euro?”

For now the market appears to be in an uneasy truce as both bulls and bears await the FOMC. The latest US data has been less than stellar as weather woes in the Northeast and Midwest have clearly taken their toll on economic activity. Today’s Building Permits and Housing starts figures could yet another victim of the winter storms, The markets are looking for essentially the same figures as the period prior, but if the data misses it could push dollar lower with the USD/JPY pair testing the 121.00 for the first time this week.

Boris Schlossberg
Managing Director

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