Forex Flash: EUR looks to receive short-term pop on Fed remarks – Westpac

In our view, “the EUR probably still bounces into and during Bernanke’s testimony later today. Bernanke is sure to push back against the hawks who have been fretting over the long term costs of Fed asset purchases. He is likely to repeat that the Fed is still well short of its goals when it comes to the US labor market as well.” notes Robert Rennie, an FX Strategist at Westpac.

However, beyond a short term pop in the EUR there is no denying that EUR is in a clear downtrend from early February. The other big event risk to focus on is the to and from around the US budget sequester. By all accounts the odds that the automatic cuts take effect are rising.

“That is a risk negative trigger and given EUR’s positive correlation with US stocks, EUR arguably struggles if the full cuts take effect. Moreover, the EUR/GBP has pushed rapidly higher towards our 0.88/0.9000 sell level as ‘safe haven’ sterling lost its appeal. That move looks as if it has gone too far now. Our interest in selling EUR/GBP has risen strongly.” Rennie notes.