Where we are: EUR/USD currently trades at 1.1691, barely changed on the day (+0.01%), trapped within a tight intraday range of 1.1677-1.1698. This level is a whisker above yesterday’s NY close. The pair is struggling to gain traction, weighed down by a strengthening dollar.
What’s driving it: The Euro’s outlook is clouded by the ECB’s mild easing bias, cemented by last month’s 25bp rate cut. While the prospect of further cuts remains data-dependent, with wage trackers and services HICP under scrutiny, the bar appears low given the 2.5% deposit facility rate. Dollar strength, fuelled by a jump in the DXY to 98.26, is exacerbating the Euro’s woes, alongside a widening US-DE 10Y yield spread of +134bp. The collapse of the Romanian government adds a layer of political uncertainty within the Eurozone, potentially jeopardizing access to EU funds.
- ECB retained a mild easing bias at its last meeting on April 17th, keeping a meeting-by-meeting approach.
- Romanian government collapse adds to EU political instability.
- Speculator positioning shows a modestly long EUR bias (+35,712 contracts), albeit at the 10th percentile, suggesting little room for further upside without a catalyst.
NY session focus: The US ISM Services PMI and JOLTS Job Openings data at 10:00 ET will be crucial in determining the near-term direction of EUR/USD. A strong ISM print could further fuel dollar strength, targeting a break below 1.1675, while weak data may offer a temporary reprieve. Keep an eye on ECB President Lagarde’s speech at 14:30 CET for any hints about the future policy path. The trade at risk is short EUR/USD given the crowded DXY long. The pain trade would be a sharp reversal in US yields, squeezing dollar longs and lifting the Euro.