Nov 4 (Reuters) - EUR/USD hit a 14-session high and rallied above the 5-, 21- and 200-Day moving averages Monday and further gains may follow due to positioning, rate differentials and technical influences. The latest CFTC report indicated net-short euro positions are at their largest since March 2020. The positions were built over the last two reporting periods but EUR/USD rallied over the second-half of the period which suggests many investors that are short are under water and may have to cover should EUR/USD's ascent continue. The dollar's yield advantage over the euro has been eroding since Oct. 28. Further erosion occurred on Monday, which put German-U.S. 2-year yield spreads at their tightest since Oct. 17. Fed and ECB terminal rate spreads also extended their narrowing trend to -153bps to trade the tightest since Oct. 21.
EUR/USD technicals highlight upside risks. In addition to rallying above the slew of daily moving averages EUR/USD rallied back above the 23.6% Fibonacci retracement of the 1.1214-1.076125 drop.
Rising daily and monthly RSIs reinforce bullish signs as they indicate upward momentum is in place. Meanwhile, investors also face U.S. election risk. The latest polls indicate very tight races, which could indicate results may be contested and winners might not be known for some time. Fed risk also looms. A 25bps cuts is expected by investors so Fed Chair Jerome Powell's presser will be key. A dovish tone could send the dollar much lower and EUR/USD higher.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
((mailto:christopher.romano@thomsonreuters.com;))
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