The Euro (EUR) fell to 2-year low last Fri after PMIs slumped in Germany and France. Pair was last at 1.0472 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Upside surprise may aid the squeeze in EUR shorts

“Elsewhere, worsening of geopolitical development between Ukraine-Russia (higher natural gas prices), fears of US protectionism measures, German political uncertainty, an acceleration in dovish re-pricing of ECB cut cycle further undermined EUR. Last Fri, Villeroy said that decision made at ECB are independent of those of the Fed.”

“And he elaborated saying that ECB can lower rates with the fall in inflation. He also added that prices are increasing less quickly than wages on average – allowing ECB to lower interest rates. This morning, EUR rose amid pullback in USD. Bearish momentum on daily chart intact while RSI shows signs of turning higher from near oversold conditions.”

“Bullish divergence is also observed on daily MACD. Not ruling our EUR short squeeze intra-day. Resistance at 1.0510, 1.06 and 1.07 (21 DMA). Key support at 1.0450 levels before 1.03 levels. Focus this week on Euro-area CPI. Upside surprise may aid the squeeze in EUR shorts.”