News of terror attacks in the southern Iraqi town of Basra and an explosion in the Saudi Arabian capital Riyadh caused some dollar scare yesterday noon and permitted EUR/USD to tick higher towards the 1.1840 zone. The market also took back some pre-Greenspan positioning, which had been a dollar positive element since the start of the week (and had been confirmed by some hawkish comments by Fed's McTeer and Greenspan), and thus the EUR/USD pair went into the Greenspan testimony at the 1.1850 zone. This morning, EUR/USD briefly even dipped to new lows in Asia, also taking a dollar bullish view, just below 1.18, but this also proved temporary as the pair came back to the 1.1830 zone at the time of writing.
As we've said over the past days, the bias is clear and unmistakable: rates will rise in the US as things stand now, the only question is timing and this, while
important, is only secondary to the message that rates will rise in the US and thus the yield differential between the euro zone and the US will decrease, or even evaporate as the ECB is not ready to follow a rate hike cycle yet, taking into account euro zone eco doubts…There can be only one conclusion and that is that, under these conditions, the bias for EUR/USD is
lower: sell euro on upswings versus USD.
ČSOB - Investment Research