EUR/USD should see a deeper correction towards 1.16
The likelihood of a deeper EUR/USD correction has grown. Today's softer than expected German GDP data is cause to doubt the possibility of an ECB taper that would have to be based on higher growth and not inflation. It is slower growth and not weakness at the core of the euro zone but for EUR/USD traders who are heavily long and have weeks to sit it out before Jackson Hole, or the September ECB rate decision, the prudent option is to take a profit. Yield spreads have been warning that the EUR/USD rally is overstretched for weeks now and saw further significant widening in the 24 hours ahead today's data. EUR/USD was trading 1.14-1.15 when benchmark 10 year US/German yield spreads were trading at today's levels. Adding to downside risks is the fact that many of the EUR 1.5billion longs added between Aug 1 and Aug 8 are losing money. A closing break below 21-DMA at 1.1732 targets a 38.2% retrace of the June/August rally at 1.1608.
Chart - (Source:ThompsonReuters)
USD/CHF bulls in with a chance despite pullback
Technical charts show scope for USD/CHF to extend gains towards the 100-DMA at 0.9781 and the top of the daily Ichi cloud at 0.9827. Today's price action saw a pullback to 0.9703 from 0.9758 but the retreat allows those wanting to play the long side to buy at better levels. The 10-DMA at 0.9692 today is a potential stall point and a good level to place a bid. Friday's Doji reversal signal was confirmed Monday with a higher high and close and reinforces the upside bias. Ideally looking for a close above 0.9720 Tuesday for gains to continue. A close under that level suggests the signal was false and focus could return to the downside. Chart http://reut.rs/2i3qRxE