EUR/USD finds itself on the upper end of its recent range but is bumping up against offers from the 800 lb gorilla of the forex world, China. Between present levels around 1.3650 and 1.3780, the sledding probably gets much harder.
The reflation trade has been a big winner these last two months, particularly the equity component. A 37% rebound in the major averages in that time span is breathtaking and it is probably time for the markets to catch their breath.
The timing of the announcement EU banking stress test is illustrative. It draws a bright line under the fact that there is a lot more to be done on shoring up the European banks relative to what has been done in the US and UK.
A sharp contraction in China’s trade surplus is also a warning sign. Part of the fall was on a surge in imports of raw materials but exports showed notable weakness.
The big move on the reflation trade is oil, which is approaching $60. Perhaps the Bernanke comments on the risk of deflation receding are helping give that commodity a boost.
Support is quite firm in the 1.3555/65 region though stops are building in the 1.3540 region.