Where we are: EUR/USD is trading around 1.1640, testing lows not seen since early April. The pair has traded in a tight range overnight, generally pressured, and is below yesterday’s New York close. Key support lies at 1.1630, a break of which could open the way to further downside. Resistance is seen at 1.1680, previous support.
What’s driving it: The Euro is struggling to find its footing as the market digests the ECB’s mild easing bias and recent softer inflation prints against a backdrop of escalating geopolitical tensions. While the ECB cut rates by 25bp at its last meeting, the “meeting-by-meeting” language leaves the door open for either further cuts or a pause depending on incoming data. Renewed concerns about the conflict in Ukraine, highlighted by the deadly attack in Kyiv, are weighing on sentiment and boosting safe-haven flows. We see increasing risk that the ECB will pause its easing cycle given the sensitivity to geopolitical risks.
- The ECB has a mild easing bias but is data-dependent, as evidenced by the “meeting-by-meeting” language.
- Eurozone HICP came in at 2%, down from 2.1% prior, but the market has largely priced this in.
- Net non-commercial Euro positioning is modestly long at +32,202 contracts, near the 10th percentile, suggesting limited scope for further long liquidation and potential for a short squeeze if the narrative shifts.
NY session focus: The market will be closely watching risk sentiment for cues. Any escalation in Ukraine will likely weigh on the Euro. Keep an eye on US 2Y yields, currently at 3.98%, for further direction; a break above 4% could add downward pressure to EUR/USD. Key level to watch is 1.1630; a sustained break lower could trigger a move towards 1.1600. Today’s data releases are light. The trade that’s working is selling EUR/USD on rallies. The pain trade for Euro would be a de-escalation of geopolitical tensions coupled with hawkish rhetoric from ECB officials.