Into the new week and the China, G8 and Kuwaiti news did little to inject fresh volatility into the markets. Instead it was plain old-fashioned flows and stops that did the damage in EUR/USD. Spot initially looked to consolidate just above the 1.35 mark but late in the European morning and the pair nose-dived as sellers triggered stops and follow-through accelerated.
Option barriers at 1.3450 were removed amid the drop with the last layer of stop/loss orders (circa-1.3445) reported behind the fall to the 1-month low at 1.3437. Bears now eye a run at 1.3375 in the short-term. Into North American trading and dealers may at first look to the latest Dollar strength as a signal that the US unit has been positively impacted by the weekend news.
However, this may be a little too simplistic with renewed USD strength by no means sustainable should weak US economic data point to the need for the Fed to consider cutting back interest rates. Also, the lack of US data set for release in NorAm trading should help EUR/USD to consolidate at the lower levels.
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