EUR Trading Outlook (15-07-2014)

EUR/USD Short squeezes in EUR vs. JPY & GBP spiked EUR/USD to 1.3640 in Europe’s morning. Solid offering interest into 1.3650 prevented further gains and the pair slid towards 1.3625 as NY got going. The USD was firm for the most part in NY as US bond yields continued their bounce from last week’s lows. Early NY saw a push towards 1.3615 before a bounce had it back near 1.3630. Yield spreads edged further in USD’s favor and the bounce faltered. The drift lower resumed and pressure was added by the IMF. The organization stated the ECB should use QE if inflation stays low. Further pressure came from Draghi himself as he echoed recent dovish comments. He noted appreciated FX rate is a risk to a sustained recovery as well as stating accommodation will remain high. EUR/USD dipped near 1.3805 before lifting back near 1.3620 late in the day. Trades now await Yellen’s testimony tomorrow. She’s unlikely to give any hawkish tips in her prepared remarks. The Q&A might be tougher for her as she’s likely to be pressed on rates due to recently improved US econ data. Hawkish tips during the Q&A may see 1.3475/00 break