EUR/USD pushing below 1.1300 - why no downside momentum?
As threatened last week, EUR/USD is now pushing for sub 1.1300 levels and it is a move which has been on the cards for a number of weeks and months now as the Eurozone data has been exceptionally weak. What was seen as a temporary dip in growth, has now developed into ECB concerns over downside risks to the economy, and there are growing fears that Germany is heading towards a recession as global demand (and therefore exports) continues to fade.
As we have noted, the cross rates have had a key impact on the EUR/USD rate, most notably EUR/CHF and USD/CHF. As is widely acknowledged, the SNB is prepared to step in and contain excessive CHF strength and this has been largely performed through the EUR/CHF rate. We saw a few months back that the pair was well supported into 1.1200, and since then, despite limited progress through 1.1400, there have been a series of higher lows developing.
All the while, USD/CHF has been pushing higher, with the backdrop that the USD is as much as a safe haven as the likes of CHF and JPY - USD/JPY also now looking to push higher as we make a break above 110.00 again with eyes on 110.30-35 resistance. In overnight trade, we saw the effects of thin liquidity pushing USD/CHF sharply higher to the point where we almost hit 1.0100. The move back down was just as swift, though we are again grinding higher as a function of the broader USD moves.
For EUR/USD, we now watch the 1.1255-70 zone, and with NY traders still to enter the fray, we expect these levels will be tested, though again, we expect a tightness to trade given the conflicting forces in the cross rates mentioned above.