EUR/USD inter-markets: sellers getting ready?

Spot has gained around 3 cents since Monday’s fresh 2016 lows in the boundaries of the 1.0500 handle to 3-week tops in levels just shy of the 1.0800 handle.

The pair plummeted to the 1.0500 area following the ‘No’ win at the Italian referendum on Sunday, although market participants have quickly shrugged off the results and sparked a wave of risk-on sentiment, bolstering the correction higher to the vicinity of 1.0800 the figure, where it is now holding on.

On the USD-side, the case for a stronger buck remains intact, always propped up by this virtuous circle involving tighter monetary conditions, potential fiscal stimulus, higher inflation expectations and solid yields in the US money markets, all adding to the view that the current leg lower in the dollar should be corrective only.

The ECB meeting on Thursday emerges as a potential hurdle for further gains north of the 1.0800, as the current QE programme could be extended beyond March 2017, among some other potential measures. That, plus the likeliness of increasing effervescence in the Italian political arena promises to put the recent up move in the pair to the test.

EUR/USD faces initial hurdle in the 1.0800/1.0850 band, coincident with yesterday’s spike, the 38.2% of the November drop at 1.0815 and March and October lows at 1.0820 and 1.0850, respectively.