The short squeeze for the euro dollar exchange rate appears to have run its course, more falls to come
- Category: US Dollar Exchange Rate
- Published: Wednesday, 23 May 2012 12:12
- Written by Sam Coventry
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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.
"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.'