EUR/USD Corrects Lower, Firm Support Realistic On Dips

Frankfurt (June 30)  The Euro will remain vulnerable to a limited correction weaker, although selling pressure is likely to be limited given the shift in yield expectations with an eventual test of the key 1.1500 area.

The Euro maintained a robust tone in late European trading on Thursday with EUR/USD advancing to 14-month highs around 1.1440.

The Euro gained further support from expectations of a shift in ECB monetary policy during the second half of 2017 with some removal of policy accommodation.

The German retail sales data was slightly stronger than expected with a 0.5% gain for May. Unemployment, however, increased 7,000 for June compared with expectations of a further decline and this was the first monthly increase since July 2015.

The flash headline Eurozone CPI inflation rate declined to 1.3% from 1.4% the previous month, although this was above expectations of 1.2% while the core rate rose more than expected to 1.1% from 0.9% the previous month.

 The overall market reaction was limited with the Euro still prone to an underlying correction following sharp gains during the week as a whole.

There was also a small corrective rally in German bunds which also put some downward pressure on the Euro with some tentative dollar buying on dips.

US data releases could be significant on Friday with the main focus on the core PCE prices data. If the data is in line with consensus expectations, European bond-market developments are likely to have a more substantial market impact.

There is a high risk of choppy trading late in European trading on Friday with month-end position adjustment an important element, especially given an increase in volatility across all asset classes.

Positioning data will be an important focus late in the New York session with the more prone to a significant correction if there has been a substantial increase in long positions.

Source: EconomicCalendar