EUR Trading Outlook (03-04-2015)

EUR/USD The short squeeze begun in Europe’s morning pushed further along on NY trading. The pair sat near 1.0815 into NY’s open. Early action saw a spike down towards 1.0800 as the better than f/c US claims data lifted the greenback. The 1.0800 level has been key lately and the dip to that area was bought as shorts covered. With the holiday coming up and US NFP due the market decided it was best not to be wrong-footed going into the NFP. Chatter & rumors that the US jobs numbers would disappoint added bull pressure to EUR/USD. The pair rallied from the 1.0800 area, ran stops above 1.0845 and quickly traded to 1.0906 as illiquid markets exaggerated the rally. There was very little dip though as the 200-HMA contained the pullback. Late in the day the pair sat just below 1.0900. The US jobs data is the key risk tomorrow. A weak number could see market expectations for Fed lift-off pushed back and the USD would then tumble. EUR/USD’s squeeze would likely persist and we may see a retest of the post-Fed high.

USD/JPY MOF flow data showing net Y1tln+ of Japanese foreign bond buying confirmed the uptrend this year that has offset the steady erosion of net short yen spec positions, as registered in the COT data, and leaving USD/JPY in a choppy consolidation range since mid Dec. USD/JPY again found bids in the 119.40 with Ldn’s return, and more bids after US Jobless Claims tumbled and Trade Deficit narrowed sharply (port strike). Pair rallied to the hourly Cloud top at the day’s 119.89 high before running into broad-based squaring of excessive long USD positions ahead of the long w/e for most and the NFP risk Fri. Mkt’s looking for a US data tie-breaker to either force the Fed to make good on tightening threats or to confirm data are too weak to tighten much if at all this year, which is what money markets are hinting. Meanwhile, a tourism boom in Japan is mitigating hits from higher import costs and the VAT hike, but also bringing new demand for yen, largely from Asia. EUR/JPY rallied on a short EUR positioning squeeze as the EUR is the most net spec shorted ccy. Big bounce in AUD/JPY as part of the book-squaring. BOJ meeting Apr 7-8 seen steady, but QQE3 an H2 risk.