Where we are: EUR/USD is currently trading at 1.1777, up 0.45% on the day and testing the upper end of its intraday range of 1.1723-1.1778. The Fiber has caught a bid throughout the European morning, extending gains from the Asian session and challenging levels last seen in late April. This current level marks a significant breach of recent resistance, potentially paving the way for further upside.
What’s driving it: The Euro is catching a bid as expectations for aggressive ECB easing have been tempered. While the ECB cut rates in April, retaining a mild easing bias, sticky services inflation near 3% and wage data will keep the doves on a short leash. Recent communications from ECB officials, including Lagarde’s comments on stablecoins and Schnabel’s discussion of central bank independence, signal a cautious approach to further easing. The Euro is being additionally supported by broader risk-on sentiment, reflected in the rally in US equity futures, and a weaker DXY trading at 97.77.
- ECB Deposit Facility Rate at 2.50% after a 25bp cut on April 17th.
- DE 2Y yields are down 2bp d/d to 2.578%, suggesting a slight easing of monetary policy expectations but not enough to trigger a sell-off.
- CFTC data shows net non-commercial Euro positioning modestly long at +35,712 contracts, leaving scope for further upside on short covering.
NY session focus: All eyes are on the 08:30 ET US jobs report (Average Hourly Earnings, Non-Farm Employment Change, and Unemployment Rate). A weaker-than-expected print could fuel further Dollar weakness and propel EUR/USD towards 1.1800, while a strong report could trigger a reversal. The 10:00 ET Prelim UoM Consumer Sentiment and Inflation Expectations will also be closely watched for further clues on the Fed’s policy path. Watch for the ECB President Lagarde speaking at 09:00 CET as well. The trade that’s working is long EUR/USD. The trade that’s at risk is short EUR/GBP given the broader risk-on mood. The pain trade is a strong US jobs report sending EUR/USD back below 1.1700, squeezing Euro longs.