EUR Trading Outlook (07-08-2014)

EUR/USD Weak German factory orders for June combined with Italy’s Q2 GDP contraction to drive EUR/USD to a new trend low (1.3333) just before it bounced to 1.3345 into NY’s open. NY saw short covering early as bids into a 1.3325 barrier, the weekly cloud base (1.3317) and the Nov low would go unfilled due to general USD weakness. Short covering persisted into Europe’s close with the pair reaching 1.3360. USD/JPY’s wash-out through the 200-DMA and eventual run to 101.77 saw broad based USD sales ensue. EUR/USD hit a 1.3387 high. Only a small pullback was seen as the pair sat near 1.3380 late in the day to leave the pair up tiny on the day. A further squeeze can’t be ruled out as the daily RSI diverged & a doji forms on today’s candle. Bears hope the ECB will prevent a squeeze as some expect Draghi to up the dovish talk after HICP was below f/c and today’s data set showed the EZ econ weakening. IF Draghi doesn’t deliver a dovish message shorts are in for trouble. We may then see a quick more to 1.3485/90 where the July 24 high and 21-DMA sit. Above 1.3490 eyes 1.3550.