EUR / USD fell to its lowest level in nearly five months on Wednesday, remaining under pressure from contrasting US and euro zone pandemic recovery paths that will reinforce expectations of the Fed and ECB divergence.
EUR / USD has fallen with 10-year Bund-Treasury yield spreads, now near pandemic lows after a drop in euro zone core CPI and European Central Bank President Christine Lagarde threatening on Bloomberg TV to increase actions to keep local yields from rising with Treasury yields , thus fostering a weaker EUR / USD.
Though below consensus projections, a 517,000 ADP jobs rise was still strong and may bolster expectations of a robust non-farm payrolls report on Friday.
EUR / USD appears headed for November and September’s 1.1602 / 12 lows that have weekly tech support nearby, and not far from Wednesday’s 1,1704 lows.
Under pressure to change the course of a third wave of COVID-19 infections that threatens to over-run hospitals, French President Emmanuel Macron will deliver an address on Wedresday at 1800 GMT
Though US infections remain fairly high, they are well off their worst levels and vaccinations are widely available
GBP / USD – COMMENT-Euro Woes A Sterling Ally Against Dollar Strength
Sterling bulls are not going down without a fight, and euro weakness is proving to be an ally.
Cable bounced off early European lows at 1.3717, just ahead of daily cloud base support at 1.3715 and last week’s lows in 1.3670’s, rallying to an early U.S. high by 1.38.
Sterling bulls remain sanguine about UK pandemic and growth recoveries, similar to the factors bolstering the dollar lately, though minus the stimulus boost.
Down from February’s multi-year high by 1.4240, GBP / USD has also been buoyed by EUR / GBP’s 10 big-figure fall from March 2020 highs by 0.9500 to March 2021’s 0.8506 low.
IMM position data indicates EUR longs have fallen from Aug 2020 highs by + 211k contracts to current levels by + 93k.
GBP positioning over the same period has moved from + 6k to + 22k.
With the euro zone mired in COVID-related lockdowns and Brexit tensions ebbing, EUR longs versus the pound are likely to continue to unwind.
That could provide support for GBP / USD, especially as EUR / GBP moves nearer pre-Brexit referendum levels by 0.7400.
