Where we are: EUR/USD is hovering around $1.1450 in early London trade, languishing at its weakest level since mid-March and pacing a 1% decline for the week. The single currency faces heavy selling pressure, having broken below key structural support at $1.1480 during the Asian session, with the intraday low pressing toward the $1.1420 region. This slide leaves the pair heavily offer-side into the New York open, with the next major defensive line for bulls sitting at the $1.1400 psychological handle.
What’s driving it: European Central Bank policymaker Pierre Wunsch has kept a potential July rate hike in play if domestic service sector pressures broaden, a hawkish stance that highlights stubborn inflation friction despite the April cut to 2.50%. This discord within the Governing Council is clashing with a softening Eurozone wage tracker and core HICP at 2.3%, leaving the ECB in a policy bind that fails to support the currency. The domestic policy outlook is further complicated by escalating geopolitical friction, with Washington initiating a Section 301 trade investigation into German medicine spending and reviewing US forces in Europe. These European headwinds are running straight into a broader global risk-off shift as the abrupt cancellation of US-Iran peace talks drives safe-haven flows into the US dollar, which is already supported by US 2-year yields backing up 15 basis points to 4.2%.
- Hawkish friction on the ECB Governing Council as Pierre Wunsch flags a July hike if services inflation persists, contradicting the mild easing bias of the doves who look to soft wage data to justify further cuts.
- Transatlantic trade and security tensions escalation, as the US launches a Section 301 trade investigation into Germany’s medicine spending alongside a hostile review of US forces in Europe by Hegseth.
- Extremely washed-out positioning, with CFTC speculative net longs dropping by 34,934 contracts weekly to just +13,932 contracts (6th percentile of the 52-week range), leaving the market structurally clean but vulnerable to a fast short-covering squeeze.
NY session focus: The focus now shifts to the critical US macro prints at 08:30 ET, which will determine if the Treasury sell-off that pushed US 2-year yields to 4.2% has run its course. We like selling intraday EUR/USD rallies up to $1.1480, targeting a clean break of the $1.1420 overnight low to open the path toward $1.1400. The long-euro carry trade is highly at risk here as sovereign spreads widen and Middle East escalation cancelled peace talks in Switzerland, fueling global safe-haven USD demand. The absolute pain trade for the desk is a weak US data print that triggers a violent short-covering squeeze back toward $1.1520, catching the recently washed-out speculative accounts offside.