Where we are: EUR/USD is currently trading at 1.1635, up 0.06% on the day after bottoming at 1.1586. The pair is trading within a relatively tight intraday range of 1.1586-1.1638, struggling to gain meaningful traction after an early dip. It remains to be seen if it can close above yesterday’s New York close.
What’s driving it: The mild easing bias preserved by the ECB, even after last month’s 25bp cut, continues to weigh on the single currency. The market is weighing the probabilities of a follow-up cut in June, balancing softening wage trackers and services HICP against the risk of re-accelerating services inflation or fresh energy spikes. The modest bounce is likely driven by profit-taking after the dip and a slightly softer DXY; however, the US-DE 10Y spread at +149bp is not helping.
- The ECB minutes from the April meeting were released this morning at 11:30 CET, but are unlikely to contain any surprises following the press conference.
- German 2-year Schatz yields are down 2bp to 2.597%, while the 10-year Bund is also down 2bp to 2.990%, flattening the curve slightly.
- Speculative positioning in EUR remains modestly long, but is at only the 12th percentile, suggesting limited scope for a major squeeze. However, that also points to limited conviction.
NY session focus: The main event risk today is the US data dump at 08:30 ET, including Core PCE, Prelim GDP, GDP Price Index, and Unemployment Claims. Expect volatility around the releases. A hotter-than-expected Core PCE would likely pressure EUR/USD back towards the day’s lows and potentially break 1.1580. Conversely, a weaker GDP print would likely fuel a rally toward the 1.1650-1.1700 area, challenging the upper end of the recent range. Watch for Lagarde’s speech at 09:10 CET for any subtle shifts in tone, although policy communication is usually reserved for post-meeting press conferences. The pain trade would be a string of weaker US data pushing EUR/USD decisively above 1.1700, squeezing any remaining shorts.