A EUR/USD slide near 1.0400 may present bullish opportunity

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Sept 27 (Reuters) -EUR/USD's down trend hit a 7-month low Wednesday on broad based dollar buying, putting support near 1.0500 under threat, but the slide may not have much further to run, with the 1.0400 area a potential line in the sand for bulls.

Comments from Minneapolis Fed President Neel Kashkari helped buoy U.S. yields and the dollar. In a CNBC interview Kashkari said he doesn't know if Fed policy is restrictive enough and that economic data suggests the U.S. central bank isn't as restrictive as it appears.

Bank models for month-end flows indicate the dollar will be in demand ahead of Q4, which should keep downward pressure on EUR/USD.

Those factors may drive EUR/USD towards 1.0400 but, caution may be warranted at that point.

Widening German-U.S. yield spreads have been a driver of EUR/USD weakness. Very recently however, the dollar hasn't increased its yield advantage as 10-year US10DE10=RR and 2-year US2DE2=RR widening has abated.

Should the dollar's yield advantage begin eroding, EUR/USD's down trend may reverse.

U.S. data will likely determine if spreads tighten, with any signs of economic weakness allowing dollar bears to fight for control.

For more click on FXBUZ

(Christopher Romano is a Reuters market analyst. The views expressed are his own)


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