Where we are: EUR/USD is currently trading near 1.1630, struggling to hold above one-month lows after dipping to 1.1625 overnight. The pair remains capped below its prior NY close around 1.1640, with bearish momentum prevailing after yesterday’s risk-off move. Immediate resistance lies at 1.1650, with support around 1.1610.
What’s driving it: The Euro remains under pressure, weighed by the ECB’s dovish stance and persistent concerns over energy supply disruptions stemming from the ongoing Middle East conflict. The ECB, at its last meeting on April 17th, delivered a 25bp rate cut to 2.50% but retained a meeting-by-meeting approach, leaving the door open for further easing. This contrasts with the stronger hawkish signals emanating from the US, reinforcing the divergence trade; yesterday’s rise in US yields of +9bp on the 2Y and +12bp on the 10Y amplified that effect. Meanwhile, the rise in WTI crude continues to add to inflationary pressures in the Eurozone.
- The recent Eurozone HICP data, showing headline inflation at 2.0% and core at 2.3%, offers only limited respite, as these figures remain above the ECB’s target and are vulnerable to energy-price spikes.
- Speculator positioning in EUR remains modestly long at +40,200 contracts, which, while below the 50th percentile, offers scope for further downside as longs are washed out.
- FT reporting suggests that markets still expect an 80% chance of a 25bp hike in the Eurozone, and it might be an overestimation given rising energy prices and ongoing military conflict.
NY session focus: All eyes will be on the US Pending Home Sales data at 10:00 ET, though the primary driver for EUR/USD will remain the broader risk sentiment and the path of US yields. Watch for a potential test of the 1.1600 level on further dollar strength. Any sustained break below would open the door to a test of 1.1550. The working trade remains short EUR/USD on upticks. The pain trade for EUR is a surprise re-pricing of ECB hawkishness fueled by stronger-than-expected data or de-escalation in the Middle East conflict.