Euro correction risks remain significant due to the recent false break above the 1.19 level following the Federal Reserve's decisions. The softer German IFO data contributes to the downward pressure on the EUR/USD exchange rate, indicating potential economic challenges within the Eurozone. With positive dollar flows expected to materialise around the corporate month-end on September 26, this situation creates an environment where the Euro can experience a deeper setback against the US Dollar. As traders assess these developments, the technical outlook for EUR/USD suggests caution and potential further declines in the near term.
Barclays FX strategists report that their proprietary month-end rebalancing model shows a slight signal for dollar selling against all major currencies by the end of the month. Their quarter-end model, which follows the same methodology, indicates a strong dollar selling signal against most majors, with a moderate signal for the Norwegian krone, Swedish krona, and Canadian dollar. This model reflects the month-end FX demand for rebalancing by portfolio managers aiming to keep their currency hedges in line with the monthly performance of both foreign and U.S. equities and bonds. Following the Federal Reserve's first rate cut in nearly a year, treasury yields have continued to rally, and U.S. stocks have reached all-time highs. Barclays strategist Sheryl Dong notes, "The relative outperformance of U.S. equities compared to their peers reinforces the dollar-selling signal in our model." She adds that "all the signals are on the verge between strong and moderate, and relative equity performance could enhance our signal in the coming days." The dollar index, which evaluates the currency against six counterparts, remains relatively stable this month but has risen approximately 1% quarter-to-date.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!