EUR/USD Held Back By Correction Pressures, Solid Buying On Dips

Frankfurt (July 13)  There will be further pressure for a correction in EUR/USD. Although there is still likely to be strong demand on dips on any move towards 1.1320 ahead of next week’s ECB meeting.

In her written testimony to Congress on Wednesday, Fed Chair Yellen stated that the economy had strengthened during the second quarter and that further interest rate increases were likely to be warranted. She also stated that the Fed would not need to raise rates all that much further to reach the current low estimates of the neutral rate.

There were comments from Yellen that inflation would be monitored closely, although she reiterated that the recent dip in inflation was due to temporary factors.

The dollar was unable to gain any traction from Yellen’s comments with further speculation that medium-term rate projections would be scaled back.

EUR/USD initially moved higher to the 1.1470 area before being subjected to a sharp correction. There was a sharp Euro retreat on the crosses with notable weakness against Sterling, together with notable losses against the yen and Swiss franc.

Sharp losses on the crosses pushed EUR/USD to lows just below the 1.1400 level before finding solid support on dips.

There were no major developments within the Eurozone during the day with markets waiting for any further official rhetoric or unofficial briefings from ECB officials ahead of next week’s policy meeting. ECB tensions will be a key focus over the next few days.

EUR/USD pushed to higher just above 1.1450 in early Europe on Thursday before again being subjected to a significant correction with a fresh test of support below 1.1400.

US data releases will be monitored on Thursday, although the overall impact is likely to be limited unless the data is substantially different from expectations.

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