Offers into 1.3160 capped the early European EUR/USD rally but with talk of central bank supply into the 1.3170's the topside looked thick from the outset. Deeper into the European morning and Asian account selling weighed but bids into 1.3140 initially looked to stall further downside actions.
However, cable selling offset EUR/GBP strength and the pair was forced lower inline with broader Dollar strength. Bids into 1.3120 were eyed as a key short-term trigger but these remained intact as spot finally bounced. Liquidity remains tight and volumes low but offers into 1.3150 are eyed amid the late morning rebound. Any break below 1.3120 eyes 1.3100 support with talk of stops built below 1.3090.
A break here will see follow-through increase with talk of gamma related two-way into the 1.31 area linked to the 1.31 maturity tomorrow. Looking ahead, the Asian holiday may have sucked a large chunk of liquidity from the market but with the US holiday for Presidents Day keeping the US markets in weekend mode, risk appetites are likely to remain subdued for the remainder of the day.
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