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BUZZ-COMMENT-Dollar's correlation with risk may be bad news for euro

Credit: REUTERS/DADO RUVIC

The U.S. dollar's positive correlation with risk sentiment last week could be bad news for the euro, if Wall Street continues to trend higher and U.S. economic data is resilient.

Aug 24 (Reuters) - The U.S. dollar's positive correlation with risk sentiment last week could be bad news for the euro, if Wall Street continues to trend higher and U.S. economic data is resilient.

Stronger-than-expected U.S. business activity and a jump in home sales revived investor hopes that the Federal Reserve was perhaps being over-cautious on the economic outlook . Wall Street and the dollar bounced in tandem Friday, after a spell of safe-haven flows during which the dollar had benefited when stocks fell.

Friday's IMM data showed EUR longs were cut by 2,808 to 196,943 contracts during Aug 12-18 despite a 1.6% rise in the euro, which suggests that further unwinding is possible, if downside momentum starts to build.

Technically last week's EUR/USD topside failure was capped by the cresting upper 21-day Bollinger band, a very good indicator of an overbought market. The close below the 1.1809 21-day moving average on Friday was a negative signal, which targets a test of the rising 1.1703 lower band. Tight 21-day Bollinger bands often precede a trending move as seen before July's rise. The 1.1695 August low is initial support, but if the U.S, data remains resilient, a correction towards 1.1457, 38.2% of the 2020 range, is viable within the primary EUR/USD uptrend.

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eur 2 aug 24https://tmsnrt.rs/2YqbYIs

(Andrew Spencer is a Reuters market analyst. The views expressed are his own)

((Andrew.m.spencer@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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