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Session close: Settled at 1.22535, down 79 ticks
Fundamentals: The Euro is on a three-day slide of 1.4%. This morning’s Manufacturing PMI missed expectations and came in at a 17-month low. The poor read added to recent pressures but only marginally missed expectations; 56 vs. 56.6. What has raised eyebrows more is that it has only beaten expectations once since December. Markit Composite and Services PMIs both beat. However, rocking the currency world is the rise in the U.S 10-year Treasury yield. The benchmark traded to a high of 2.998% today and the spread has widened versus the 10-year German Bund since last week. The highest 10-year Treasury yield since 2014 has garnered enough attention at this critical 3% level to force a short covering in the U.S Dollar as the strength signals bettering inflation. Manufacturing and Services PMIs in the U.S came in better than expected this morning while Markit Composite missed. Existing Home Sales was the difference maker coming in better than expected and signaling that housing might be turning a corner. This stretch of weakness in the Euro ahead of Thursday’s ECB meeting signals that hawkish expectations are all but buried; for us, this signals a potential upside surprise in the Euro. Tomorrow, German Ifo Business Sentiment is due at 3:00 am CT; this is a key data point after last week’s Consumer read was the worst since 2012. From the U.S, Case Shiller is due at 8:00 am CT and Consumer Confidence and New Home Sales are both due at 9:00 am CT.
Technicals: On our last FX Rundown we said, “a move and close below first key support at 1.23565-1.2380 will encourage a consolidation lower at minimum.” This is exactly what we have seen, though not so much minimum; the close below here opened the flood gates. Price action settled just below major three-star support at 1.2254-1.22765 and this needs to be watched closely. The time to get completely Neutral on the Euro was Friday. Here, however, is the time to test the long side with a short leash. On the flip side, we are watching major three-star resistance in the Dollar Index at 90.49-90.79.
Resistance: 1.23565-1.2380**, 1.2468***, 1.2547-1.25535**, 1.2659***, 1.2725****
Support: 1.2254-1.22765***, 1.2040-1.2079***
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