The short squeeze for the euro dollar exchange rate appears to have run its course, more falls to come

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Yesterday saw a host of commentators, analysts and technical specialists call an end to the recent downtrend in finical assets.

According to many, the sell-off had overextended itself.


However, and this is particularly the case for the euro dollar exchange rate, the bounce higher this week could have merely been a 'bear squeeze' and the sell-off has returned with a vengeance.

Robert Sinche at RBS notes:

"For a while it looked like EUR/USD was going to break to a new low for the year, triggering a persistent move lower. The problem was…too many investors had the same view, at least according to a variety of data readings on sentiment and positioning."

The ensuing sell-off of the euro reached aggressive levels.

"In fact, as of last Thursday the EUR/USD 14-day RSI had reached its most extreme reading over the last 2 and a half years – more extreme than at any time during the crisis," notes Sinche.

In this context, it did not require major developments to squeeze EUR/USD higher, particularly as it fell close to the January low of 1.2624.

The outlook for the euro? More downside apparently.

RBS say:

"Moreover, our fundamental analysis on factors that have driven EUR/USD over recent years continues to suggest an eventual break to new lows for the year.'