EUR Trading Outlook (01-10-2014)

EUR/USD Europe crushed EUR/USD to 1.2590 after EZ CPI was initially reported below f/c. Broad based USD strength exacerbated the move. Early NY saw that USD strength carry over and EUR/USD was driven to a new trend low of 1.2571. The USD’s rally abated and EUR selling relented. A profit taking lift took hold. The lift’s pace increased though. A combination of a string of below f/c US econ data and an upward revision to the EZ core inflation estimate from 0.7% to 0.8% y/y from Eurostat aided to speed the rise. EUR/USD rallied to 1.2635. The USD remained somewhat soft in NY’s afternoon and EUR/USD sat just below NY’s high late in the day. The market remains in sell rally mode and offers are touted in the 1.2655/60 area with more in the 1.2690/00 area. The risk of a squeeze remains but a squeeze is unlikely to gain much traction as the ECB meets Thursday. The market is expecting the ECB to up its easing arsenal at some point in order to seriously expand its balance sheet and EUR likely stays heavy as a result.