The Euro was weakened to lows of 1.2780 in early US trade on Friday, but recovered on Monday with a push on the 1.29 level as Euro sentiment remained strong.

The University of Michigan consumer confidence index weakened to 78.7 in August from 84.7 the previous month which will cause some concerns over the US growth outlook. The immediate impact was offset by the fact that inflation expectations in the survey rose to the highest level since October which will maintain some concerns over the need for higher interest rates. From a longer-term perspective, the report will fuel concerns over stagflation in the US economy and this is unlikely to be dollar positive even if near-term interest rate expectations rise slightly.

The latest speculative positioning data recorded a small drop in long Euro positions with the net long position still above 90,000 and close to record levels. The Euro will remain vulnerable to position adjustment in the short term and this will restrict the potential for Euro gains.