EUR/USD trades at the highs ahead of US trading
The dollar remains on the back foot in trading today in what has been one that continues to be mired by the risk aversion from the global equities rout. The euro though has been resilient as it rallies through the underperformance of the greenback in spite of lingering worries from Italy.
As mentioned earlier here, the 1.1600 handle and the key levels above it remains the pivotal turning point for the pair. Until those levels give way, there is still a sense of familiarity that the rallies in the pair will continue to be sold into as long as Italy continues to weigh on the single currency.
However, the technical story cannot be brushed aside as well. Despite the risk off sentiment in equities, the dollar has been unable to find haven bids and that is worrying in itself. If something can't rally when it's supposed to, we may well see trouble ahead for the greenback.
The next key risk event for markets now will be the US CPI data release at 1230 GMT. In the way markets are positioning ahead of the data, the expectation is that a worrying spike in inflation and/or wages will just send the equities selloff into overdrive.
That in turn will feed into further negativity for US equities as the S&P 500 hangs on by a thread ahead of the new trading day. As for EUR/USD, a spike in inflation/wages by right should underpin the greenback but so is the argument for a risk off tone in markets and we all have seen how that has worked out over the past two days.
As I said earlier, trading the pair isn't as straightforward as before and if Treasury yields fall even further from here that really takes the wind of the dollar's sails and is one of the reasons why the dollar has struggled to gain traction today. There's a host of factors to look at but as always, pay attention to the charts to see what the market is focusing on.
