Where we are: EUR/USD is trading at 1.1386, up 0.08% on the session, clawing back some of yesterday’s losses. The pair is consolidating just above the 1.1350 support level, which held overnight. We’re seeing a tentative bid emerge as US yields pull back, but the momentum is fragile ahead of US data. The overnight range has been tight, reflecting caution before the New York open.
What’s driving it: The ECB’s recent hawkish pivot, driven by elevated inflation, remains the primary domestic anchor. Despite the energy shock pushing HICP to 3.2% and core to 2.5%, the central bank’s tightening bias is clear, with markets pricing in a ~50% chance of a September hike. However, recent ECB consumer surveys and commentary are signalling a potential easing of short-term inflation expectations, which could temper the pace of future tightening. This internal tug-of-war is creating a mixed picture for the single currency.
- ECB Consumer Expectations Survey shows a sharp fall in short-term price expectations, a key signal for future inflation trends.
- Traders have pared back bets on further ECB rate hikes, now pricing in less than a quarter-point increase for the year.
- Speculative net non-commercial positioning remains modestly long at +30,158 contracts, but this is down from previous weeks, suggesting some profit-taking or a lack of conviction in further upside.
NY session focus: The main event risk today is the release of the Revised UoM Consumer Sentiment and Inflation Expectations at 10:00 ET. Stronger sentiment and sticky inflation expectations would likely reignite USD strength and pressure EUR/USD, potentially pushing us back towards the 1.1300 handle. Conversely, a softer sentiment print and a dip in inflation expectations could provide further support for the Euro, allowing us to challenge the 1.1400 resistance. President Trump’s speech at 13:30 ET adds another layer of event risk, particularly for broader market sentiment and risk appetite. The pain trade here is a sharp reversal lower on disappointing US data, catching those who have chased the short-covering rally.