The euro is maintaining its position near $1.18 as investors await crucial inflation data to assess its potential impact on price pressures and the ECB’s monetary policy. Market expectations suggest a limited likelihood of an ECB rate cut in the near future, reflecting confidence in the central bank’s patient approach amidst moderate wage growth and subdued inflation. Meanwhile, geopolitical factors, including US tariffs and US-Iran nuclear talks, are also influencing market sentiment.
- The euro held just below $1.18 as investors awaited Friday’s inflation data.
- Money markets price in only a 30% chance of an ECB rate cut by December.
- ECB President Christine Lagarde expects headline inflation to converge to the 2% target over the medium term.
- The ECB will monitor currency movements but will not intervene directly in foreign exchange markets.
- US President Donald Trump’s new 10% global tariffs and a third round of US-Iran nuclear talks in Geneva are weighing on investors.
- EUR/USD stays defensive around 1.1800 in the second half of the day on Thursday.
- EUR/USD rapidly leaves behind Tuesday’s hiccup, looking to clear the 1.1800 hurdle with conviction and therefore pave the way for a potential revisit to the monthly highs beyond the 1.1900 barrier sooner than later.
- CFTC data show speculative net longs climbed to nearly 174.5K contracts in the week to February 17, the highest since September 2020.
- Hedge funds and other institutional accounts lifted short exposure to around 235.8K contracts, the highest since May 2023.
- Net positioning still favours the Euro (EUR), but the increase in opposing shorts complicates the upside path.
- Near term: the US Dollar is still calling the shots.
The information suggests a tug-of-war for the euro, influenced by both domestic and international factors. While underlying economic fundamentals in Europe appear stable, the currency’s trajectory is heavily dependent on US Dollar strength, inflation figures, and geopolitical developments. There is a mixed sentiment with increasing long and short positions, indicating uncertainty in the market regarding the future direction of the euro.