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FOREX: EURUSD Slides Back Towards 1.11 Amid Broad Greenback Recovery

FOREX
  • The US dollar has stabilised on Wednesday and the USD index stands 0.56% higher on the session, putting a pause on the steep weakening trend across August. With bunds outperforming global peers ahead of the latest round of Eurozone inflation data tomorrow, EURUSD has weakened 0.65%, steadily edging towards the 1.1100 handle as we approach the APAC crossover.
  • Eurozone money and lending data pointed to a continuation of soft credit dynamics, and this has likely weighed on the single currency at the margin.
  • The move lower for EURUSD is considered corrective given last week’s appreciation reinforcing a bullish technical set-up. Moving average studies are in a bull-mode position too, highlighting a rising trend. The trend is overbought, a pullback would allow this condition to unwind. Key short-term support to watch is 1.1036, the 20-day EMA.
  • Single currency weakness was also notable against the Swiss Franc, which relatively outperforms on the session. EURCHF is set to increase its losing streak to three sessions, extending the pull lower from the August highs to over 200 pips.
  • Vols are further biased against the greenback, with EUR, GBP and JPY 1m risk reversals posting a Z-score north of 2 points in favour of USD puts. This is more extreme in the USD/CHF curve, in which 1m risk reversals cleared 1.5 points in favour of puts today for the first time since the onset of COVID in March 2020. This makes the USD weakness this month distinct from the USD-selling phase into end-Dec'23.
  • Eurozone inflation data kicks off on Thursday with releases for Germany and Spain in focus. Revisions to US GDP and PCE for Q2 highlight the US data calendar.

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