Warnings That EUR/USD Exchange Rate is Now Peaking, Fresh Declines Ahead?

The euro (Currency:EUR) remains on the up versus the US dollar, however we are seeing consolidation on other major crosses; this consolidation pattern is being seen right across the financial markets on a day with very little data to latch onto.

Euro dollar exchange rate at the end of the rally?

The boldest call amongst the commentators we follow comes from Leander Dreyer at Jyske Bank who this morning says he is itching to call a Sell on the recent euro rally:

"We are still convinced that EUR/USD is at the end of the appreciation phase. EUR/USD has strengthened due to the USD weakening since 10 July. This has been based on rising expectations that the Fed will maintain QE at a relatively high level over a long period of time.

"Yesterday, rumours had it that the Fed is preparing an adjustment of its forward guides, meaning that unemployment must now be lower and consumer prices must be on the increase before a removal/scale-down of QE can be a reality.

"We watch out for a turn-around and will use a potential strengthening to above 133 to publish a short-term recommendation to s
Sell EURUSD."

Euro outlook dominated by resistance line

Boris Schlossberg at BK Asset Management says any further euro advances will be hard fought for owing to significant resistance ahead:

"For now EUR/USD remains capped at the 1.3250 line, but if the pair can break beyond that level there is little resistance to hold it back until the 1.3400 figure.

"With so many traders positioned on the short side of that trade, the pair could see some squeeze action if it manages to reach those levels."

Sean Lee at FXWW agrees that the euro's outlook is dominated by resistance:

"EUR/USD is nearing the upper end of its sideways range between 1.2750/1.3400 and this is not the place to be getting bullish."

Currency markets sensitive to rumour

"Strangely, EUR/USD dropped below the 1.32 mark (in line with cable) after the publication of the UK Q2 GDP. This illustrates the absence of a clear trading pattern in the major currency cross rates. EUR/USD settled in the high 1.31 area going into the US trading session. Core bond yields remained under upward pressure, but this time the USD failed to profit," says Piet Lammens at KBC Markets.

According to Lammens price action illustrates that (currency) markets are extremely sensitive to all kinds of news/headlines/rumour that affect expectations on monetary policy.

An example of such rumour was was to be found yesterday when the dollar was hit by a soft WSJ article from Fed watcher Hilsenrath.

He suggested that the Fed could consider ways of modifying its forward guidance (in the direction of low rates for even longer). US bond yields declined, EUR/USD jumped to the 1.33 area and USD/JPY dropped to the 99.00 area.

"Markets will prepare for the weekend and for next week key events including policy meetings from the ECB and the Fed and key early month data in the US," says Lammens. "It is exaggerated to call the dollar a falling knife, but with sentiment be very fragile in the run-up the Fed meeting, we turn more cautious to add USD long exposure now."