German GDP and German-U.S. yield spreads helped EUR/USD strike a three week low Tuesday and unless the dollar weakens on U.S. data and the Fed the 1.0600 area may be tested.
German Q2 GDP contracted unexpectedly, coming in at -0.1% on a quarterly basis versus estimates for +0.1% while the year-on-year rate was -0.1% versus the Reuters consensus forecast of 0.0%.
German 2-year yields fell to a 5-month low as investors concluded that the ECB could cut rates more aggressively than previously expected (FEIZ24).
The dollar’s yield advantage over the euro traded -180bps which is its widest since July 2.
EUR/USD’s drop left technicals highlighting downside risks.
The pair pierced the 200- and 55-DMAs as well as the 50% Fib of the 1.0666-1.09485 rally. The long upper wick on July’s monthly candle reinforces the bearish signals.
Investors are now focused on the slew of U.S. employment reports this week and the Fed’s two-day meeting, which begins today.
EUR/USD longs will need the data to indicate a weakening jobs market, which could then lead the Fed to take a less restrictive stance. The dollar and U.S. yields may fall sharply in that scenario as slowing job growth could give the Fed an excuse to cut sooner than their projections indicate.
For more click on
