JOHN MCCARTHY: Sell Euro As Central Banks Diverge

There's room for the euro to slip against the dollar as the European and US central banks start to head down different paths.

Earlier comments by European Central Bank and Bank of England officials highlight the different trajectories longer-term rates are likely to follow in the coming months as those central banks clearly state they are far from any consideration of reducing monetary accommodation. While the Fed has only outlined potential scenarios for reducing and eventually eliminating bond purchases, this forewarning is far ahead of the position the BOE and ECB face.

The rise in 10-year US Treasury yields has been dramatic, though they seem to be stabilizing around 2.5% for the time being. The fractionally improved US durable goods order, while volatile, suggests continued US economic improvement. EUR/USD in particular looks a little vulnerable as we drift towards the psychological 1.30 level. On other crosses, the euro exhibits little inclination to break above EUR/JPY 130 and runs into strong selling against the pound when EUR/GBP approaches 0.8580-0.08600. EUR/CHF also trades heavy.

Selling EUR/USD, recently at 1.3105, with a stop above 1.3165 looks attractive. A break of 1.3060 should accelerate the downside move with a test of 1.2950 likely.