Where we are: EUR/USD is currently trading around 1.1605, testing the lower end of its recent range. Overnight, the pair remained largely contained between 1.1590 and 1.1620, failing to capitalize on the mild risk-on sentiment seen in Asia. This level is significantly below the prior NY close, highlighting the persistent selling pressure on the single currency.
What’s driving it: The dovish undertones from the ECB continue to weigh on the Euro. Despite Eurozone HICP holding at 2%, and Core HICP at 2.3%, the ECB’s recent 25bp cut to the Deposit Facility Rate at its April 17th meeting, coupled with a maintained mild easing bias, signals further potential easing to come. Lane’s speech overnight has done little to counter this narrative. Concerns surrounding the impact of war on European stocks, as highlighted by Bloomberg, add to the bearish sentiment. The drop in US 2Y and 10Y yields is offering limited support, as the market anticipates potential divergence in monetary policy between the ECB and the Fed.
- ECB’s mild easing bias retained despite headline inflation at target, suggesting a willingness to tolerate a slight overshoot to stimulate growth.
- Net non-commercial Euro positioning remains modestly long at +40,200 contracts, near the 13th percentile, leaving room for further short-covering rallies if sentiment shifts.
- Strategist warnings of a growing war impact on European stocks are amplified by FT’s alert that the EU is braced for a ‘dramatically’ worse economic outlook.
NY session focus: All eyes are on the 10:00 ET release of Revised UoM Consumer Sentiment, although that is distinctly secondary to the overall risk picture and ECB narrative. A weaker print could offer some temporary relief to the Euro, but the overall trend remains down. Key levels to watch include the 1.1575 support zone, a break below which could trigger further downside towards 1.1500. Resistance lies at 1.1650. The short EUR/USD trade continues to work, given the ECB’s stance and broader geopolitical risks. The pain trade would be a significant de-escalation of geopolitical tensions coupled with hawkish signals from ECB officials shifting the policy outlook; that seems increasingly unlikely given current circumstances.