EUR/USD: Break Away From Accumulation Area

The sprint higher by the USD across the board has led to a breakout of a 3-day single volume distribution area. Some caution to play short right off the bat is warranted though, as the violation of the lows is yet to find sufficient acceptance below the series of lows that constituted the bottom of the range. Besides, the breakout is headed straight into the round number of 1.12. With these warnings out of the way, fundamentally speaking, and as the German - US bond yield spread is starting to manifest more vividly, capital flows are now added to the equation as yet another reason to stay bearish the exchange rate. Intermarket flows and technical both show us the same direction lower. The fact that most of the volume from Monday is now trapped just under 1.1250 is yet another indication that any rebound should still be perceived as an opportunity to bail by intraday traders. If follow through transpires as part of the bearish trend, I’d expect a break of 1.12 to see a price extension into the 1.1180-85, where the first significant cluster of bids by market-makers at the 100% proj target (1:1 measured move of the range size) should be noted ahead of 1.1150-55.