A global bonds selloff has pushed yields up across the board towards post-Brexit highs while the anti-establishment wave sweeping the western world could force a 'No' vote on the Italian referendum in December.
Strategic trade
Trade view / 23 August 2016 at 13:43 GMT

Watching EURUSD and waiting for Janet

Managing Partner / Spotlight Group
United Kingdom
Note: I already have two short positions running on EURUSD. The first dates from April 1 at 1.1365 and the second was opened on May 25 at 1.1151. Both have stop loss levels set at 1.1570.

Therefore, the motivation behind this paper (and on GBPJPY) is to answer a request from a highly supportive follower.

The euro trimmed gains against the US dollar on Tuesday, following the release of mixed manufacturing and service sector activity data from the Eurozone. 

Markit said Germany’s manufacturing PMI slipped to a two-month low of 53.6 in August from 53.8 the previous month, confounding expectations for a slip to 53.5. Germany’s services PMI fell to a 15-month low of 53.3 this month from 54.4 in July, compared to expectations for an unchanged reading.

Markit also said that the French manufacturing PMI ticked down to 48.5 in August from 48.6 last month, compared to expectations for a rise to 48.8. The French services PMI rose to 52.0 this month from 50.5 in July, beating expectations for an unchanged reading.

For the Eurozone overall, the composite PMI – which measures the combined output of both the manufacturing and service sectors – ticked up to 53.3 in August from 53.2 in July, compared to expectations for a slip to 53.1.


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Source:, Spotlight Ideas

The one-month chart above reveals that the area around 1.1343 is still proving troublesome for the EUR to break through, however, that said, sentiment on the dollar remained fragile in the broad market ahead of Friday’s speech by Federal Reserve chair Janet Yellen.

Market participants are hoping Yellen will give further indications on the timing of future rate hikes. The dollar moved broadly higher after San Francisco Federal Reserve president John Williams late last week signalled support for a September rate increase.

I still remain surprised by the euro’s relative strength as the whole region will find Q4 2016 and most of 2017 a difficult period politically with a key policy referendum in Italy during October and general elections in both France and Germany in 2017.

I sense the euro is being complacent and come Friday the dollar may prove the beneficiary from what I expect to be a mildly hawkish tenor from the Fed.

The market is only pricing a 50% chance of a hike this year. If the Fed wants to move this year and it does not want to shock the market and create unhelpful market volatility, then Yellen will have to be bold and inject the expectations of another rate hike.

The annual Fed symposium at Jackson Hole is sometimes used by the Fed to make important policy statements. However, this year's topic is seen as a discussion for the longer term and is called "Designing Resilient Monetary Policy Frameworks for the Future."

So I feel justified in using the same long-term chart I had presented on Wednesday, August 17.

EURUSD 10-year:
Source: Spotlight Ideas


Entry: sell 1.1340 12:51 GMT.

Targets: 1.1000... 1.0500... 0.9975.

Stop: 1.1590.

Time horizon: strategic trade.

— Edited by Michael McKenna

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