The EUR/USD pair came under renewed pressure yesterday. This only developed when the US traders walked in for a new week and started buying dollars, still building on the confidence boost given by last Friday's strong payrolls report. Thus the dollar strength seen yesterday was more of a continuation pattern than based on new facts seen on Monday. Still, EUR/USD sank lower to a test of the recent lows, which were given away without much ado. The 1.20 level came in sight and is apparently still being tested this morning. In the short-term though, EUR/USD might have some further downside, in what should be a sell-euro-on-upswings environment. Rather, it would probably be more correct to say that the USD has some more upside against a host of currencies. If this is a slow and long process of reversing carry trades, the euro might be hit first against the USD (small rate differential), but should the growth story and payrolls rises be confirmed over the next months, then rate hike expectations in the US will further increase and other high yielders will get hit too, with the Sterling, Aussie and Kiwi coming ever more into the picture as well.
ČSOB - Investment Research