EUR/USD inter-markets: re-focus on 1.0820?

The greenback has recovered the smile so far this week after the FBI confirmed on Sunday that the recent emails controversy warrant no news action against Democratic candidate H.Clinton. The news has sparked a sharp upside correction around the buck, sending spot back to test the mid-1.1000s, almost a cent lower than last week’s tops around 1.1140.

Yields in the US and German money markets are navigating a ‘sea of green’ so far today, accompanying the better tone in the universe of the riskier assets. In the meantime, Fed Funds future prices are testing the area of multi-day lows, currently signalling the probability of a Fed’s move by end of 2016 at just below 67%, according to CME Group’s FedWatch tool.

However, the only thing that matters now and for the next 48 hours will be the outcome of the US presidential elections. At the moment, election polls point to a tug-of-war between both candidates, although the recent FBI decision seems to have paved the way for a Clinton win, or at least markets’ perception point that way.

In view of this perception, the prospects for EUR/USD aim to a potential test of July’s low at 1.0950, followed by ‘post-Brexit’ low in the 1.0900 neighbourhood and ahead of the more relevant area at 1.0820 (March low). Reinforcing this scenario, the area of recent highs in the 1.1120/40 band seems to be capping potential bullish attempts, coinciding at the same time with August/September lows and a retracement of the May-October drop around 1.1140.

Adding to the potential downside, EUR speculative net shorts have increased to the highest level since mid-January at over 137K contracts during the week ended on November 1, according to the latest CFTC report.

To learn more about this topic, check our video analysis.