Where we are: EUR/USD is trading around 1.1705, holding above yesterday’s close but still capped by the recent three-week high seen last week. The overnight range has been relatively tight, between 1.1690 and 1.1720. A break below 1.1680 would signal a potential retest of the 1.1650 level, while a push above 1.1730 opens the door to 1.1750.
What’s driving it: The Euro remains sensitive to ECB policy signals after the recent 25bp rate cut to 2.50%. The market is pricing in a near 90% chance of a June rate hike, with three hikes almost fully priced in by the end of 2026. However, the path is not straightforward. ECB speakers like Kazaks are flagging concerns about oil price impacts on inflation expectations, hinting at potential hawkish pushback. The rising US 10Y real yield, now at 1.99%, is a headwind for Euro upside.
- The mild easing bias preserved in the ECB’s last decision leaves the Euro vulnerable to positive US data surprises, especially given the market’s hawkish pricing.
- Speculative positioning in the Euro is modestly long, at +32,202 contracts, but this is only at the 10th percentile on a 52-week lookback, suggesting there is limited fuel for a squeeze higher.
- The rising US 10Y real yield suggests that USD is attractive versus EUR.
NY session focus: Today’s 08:30 ET release of US Core Retail Sales and Retail Sales m/m will be the key catalyst. A strong print would reinforce expectations of continued Fed hawkishness and likely pressure EUR/USD lower. Watch for initial support at 1.1680, then 1.1650. Conversely, a weak print could see a short squeeze towards 1.1730. The trade that’s working is fading Euro strength, while the trade at risk is being short Euro into a weak US data print. The pain trade for EUR/USD is a surprisingly dovish ECB pivot combined with a US recession scare.