Last week, EURUSD continued its downward move reaching
new lows around 1.1670. Concerns about possible extended impact
of the recent events in France throughout other neighboring
countries and uncertainty regarding the ECB's monetary policy
(rumours about a possible rate hike by the end of the year
appearing improbable in the light of the present situation)
helped the dollar extend its gains in spite of record trade
deficit data released on Thursday (66.1 bln. $).
This week, we expect the EUR to regain some of the
lost ground on a retracement of this month's large descent
from 1.2090 to 1.1670. Apparently, the USD continues to be
structurally supported by the steadily hawkish position of
the Fed regarding interest rates and the unclear outcome of
the events in France. However, riots could gradually calm,
and this would re-open the subject of Eurozone inflation and
the talks about a possible ECB rate hike by the end of the
year. Retail sales data from the US is due on Tuesday, with
market participants expecting a 0.6-0.7 decline, which could
also fuel some EUR recovery. Possible further dollar gains
are in our view unlikely to go beyond the 1.1630 area, which
could constitute a good level to initiate early longs. On
the upside, we see the 1.1875 area (former reliable support
level for the pair) as an important ceiling, as it also corresponds
to the 50% retracement of the recent 1.2090-1.1670 move.
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