FxWirePro: Euro outlook – upside possibilities in short term

After Thursday's massive recovery in Euro, post European Central Bank's (ECB), larger than ever disappointing stimulus, we are scaling back out near term outlook and call for parity. However it is important to distinguish that we are not completely scrapping weaker Euro call, instead pushing that in the medium term.

Short Euro/Dollar has been the heaviest one sided bet and we believe that despite Thursday's big 3% jump in the pair, there are still lot of opportunities left for further short covering. Approaching FED meeting, in which rates are expected to be raised might be working as a temporary lock on the upside for Euro/Dollar pair.

On the other hand, with no major stimulus from ECB expected in the near term, after short correction bund could once again resume their downside, pushing yields higher. While lower end might remain anchored EDB deposit rates, curve could steepen, supporting Euro.

Moreover, rate hike by US Federal Reserve might even trigger higher yield across the curve for Euro zone, which would even be negative for carry trades and covering might lead it higher.

Thrice tested low around 1.05 will act as key support for Euro/Dollar pair.

Trade idea 

Buy Euro/Dollar at current rate 1.082 and largely at further dips with target around 1.10, 1.13, 1.15 and stop loss around 1.045-1.05 area.