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Euro Strength is Facing Negative Momentum

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Euro Strength is Facing Negative Momentum

Recent US data points have eased US yields generating a headwind for the greenback especially against the Euro. The Euro has climbed to multi-year highs much to the chagrin of European officials. With the ECB meeting next week, market participants will be interested in hearing how the ECB plans on dealing with declining inflation and a stronger currency.

Prior to the opening bell, investors needed to absorb October payroll data released by Automatic Data Processing. Additionally, the Labor Department released September Consumer Prices which was delayed because of the early October government shutdown.

Spain announced on Wednesday that the country has finally come out of a long and hard recession. As flagged by Spain’s central bank last week, the country exited recession after over two years in the third quarter, with GDP rising 0.1% quarter on quarter versus -0.1% in Q2. Meanwhile, CPI climbed 0.1% year over year this month, putting Spain close to deflation.

German inflation data reported on Wednesday showed a fairly significant disinflation from August. Bavaria, reported a year over year of 1.0% vs. 1.4% in August. German unemployment rose 2k vs. flat reading expected and a revised 24k in August.

Declining US yields has pushed the yield differential between the US and Europe in Europe’s favor, driving the forward curve and pushing the spot rate higher.

The Euro seemed to hold support near the 10-day moving average at 1.3750, but momentum has shifted toward negative price action. The MACD (moving average convergence divergence) index has generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index has moved from positive to negative territory confirming the sell signal. The RSI is printing near 66, which is still on the upper end of the neutral range.

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