Over the past few days, the EUR/USD pair already started to feel much more immune to any Iraq news. Yesterday this trend continued and the pair already early on flirted with the reaction lows at the 1.1980 area. A break wasn't really made ahead of the US retail sales, but when these confirmed and surpassed expectations, there was no longer any way stopping the USD from strengthening further. EUR/USD broke down to new reaction lows to the 1.19 zone. The pair is still very near those lows this morning, and even set new reaction lows below the 1.19 mark, showing the continued upbeat mood of the USD. Rumours now have it that hedge funds are in the process of reversing dollar short/neutral stances to dollar long views, as the belief may be growing that rate hikes in the US are drawing nearer. This sentiment could likely endure until the next payrolls brings more new info from the jobs arena. Therefore this improved dollar sentiment should support the Greenback in its recovery story and thus EUR/USD should be sold on upswings. We are being more cautious on opening new dollar longs, as the pair is now reaching oversold conditions.
ČSOB - Investment Research