Where we are: EUR/USD is currently trading at 1.1650, up 0.14% on the day. The pair has traded in a narrow range of 1.1629 to 1.1655 so far. This level is slightly above yesterday’s NY close, suggesting a modest bid tone in early trading.
What’s driving it: The Euro is catching a mild bid on anticipation of slightly stronger-than-expected Eurozone inflation data due at 11:00 CET. Markets are pricing in nearly a done deal for a 25bp hike at next week’s ECB meeting, with another hike anticipated later this year. That said, ECB rhetoric has been guarded – notably, Schnabel has suggested it’s premature to specify the number of rate hikes needed. A stronger than expected CPI print could seal the deal for further ECB tightening and send the Fiber higher, especially if services remain sticky.
- ECB last cut rates 25bp at its April 17 meeting, retaining a meeting-by-meeting assessment of policy.
- German 2Y Schatz yields are slightly higher, up 2bp to 2.604%. This is also supporting the Single Currency.
- CFTC data shows net non-commercial Euro positioning is modestly long, at the 10th percentile. This raises the risk of a sharp squeeze higher if the headline inflation data beats convincingly.
NY session focus: Today’s Eurozone CPI Flash Estimates at 11:00 CET will be the key catalyst to watch. The market expects headline inflation at 3.2% and core at 2.4%. A beat on either will strengthen the case for a follow-up hike, potentially driving EUR/USD towards 1.1700. Below that, strong resistance will be found between 1.1750-1.1800. Bear in mind that US JOLTS data is also scheduled for release at 10:00 ET, which may add to volatility in the afternoon. The pain trade would be a weaker Eurozone inflation print, leading to a swift repricing of ECB expectations and a sharp drop in EUR/USD toward 1.1600.