Profit-taking on the dollar has allowed the EUR to USD conversion record its strongest daily climb in two weeks but such dips should continue to be sold until a more solid level of support emerges.
With no Eurozone drivers behind EUR/USD move from 1.1156 to 1.1216 it was the failure of the dollar to extend its May gains that were largely responsible.
The move higher in the EUR/USD is by no means spectacular and it does not invalidate the near-term downtrend.
Yet, recent improvements in German and French economic data will surely start to have an impact over coming weeks.
For now though, those watching the EUR to USD conversion should wait for further declines and enter a sell order once a key level is triggered argue strategists at Westpac's investment banking unit.
CurrencyWatch have reported that with momentum turning progressively negative in the euro-dollar market strategists continue to look at any bounces in the exchange rate as an offer to sell once more.
However, there will always be those on the other side of the trade willing to buy the EUR/USD in anticipation of a more sustained recovery.
Such an example would be the strategy team at Westpac in Sydney who have issued a recommendation to buy the pair at 1.1010 with a stop-loss order at 1.0895.
The pair is currently trading at 1.1145, although more downside is expected towards Westpac’s trigger level.
“EUR may be trading poorly but it's hard to see it much through 1.10, if at all,” remarks the research note from the team, which includes strategists Callow, Rennie, Franulovich and Song.
Poor US regional economic activity data in the form of Purchasing Manager Indices - surveys conducted of company purchasing managers – lead Westpac to expect a lower-than-expected - sub-50 even - Manufacturing ISM result next week.
This is one of the most important data releases for the US Dollar; a result below 50 would show US manufacturing was in contraction mode, which would be bearish for the currency.
Callow and his team also expect an unspectacular May US Non-Farm Payrolls (NFPs) result due be released in early June on the back of the erosion caused by 39k workers striking at cable and wireless giant Verizon.
Another below-par NFP reading would weigh on US interest rate expectations, as softer labour market data could encourage a retrenchement from more cautious members of the FOMC, who might decide not to vote for a hike in the summer.
Westpac’s FX team also see upwards pressure for the euro, from an increasing likelihood that the European Central Bank (ECB) will revise up their inflation expectations based on the rising oil prices.
Recent Eurozone inflation data has been negative for two months running (-0.2%), so an upwards revision would be particularly supportive to the outlook for the single currency coming on the tails of such a negative run.
Mario Draghi had warned markets inflation might stay low for the first half of 2016 before the lag in the impact of the recovery in oil prices takes effect in H2, which he expects to push inflation higher.
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The pound has continued its recent ascent, with GBP/USD rising above 1.47 for the first time since early May and GBP/EUR breaking through 1.32 for first time since February.
EUR/USD remained around 1.1150 yesterday, despite a stronger-than-expected German IFO survey, with the dollar maintaining its gains on the back of increasing odds of a US June rate hike.
Overnight, the euro has edged higher against both the US dollar and the pound.
UK data today are unlikely to move the markets substantially unless Q1 GDP is revised. Attention will be on US data and Fed speakers today