Where we are: EUR/USD is currently trading at 1.1775, up 0.21% on the session, breaching the overnight high of 1.1778. The pair has been consolidating gains made earlier in European trading, with the overnight range contained between 1.1745 and the current level. This price action marks a continuation of the bullish momentum seen yesterday, and sits comfortably above the prior NY close.
What’s driving it: The euro is catching a bid, primarily driven by a softer dollar, as US yields drift lower and risk sentiment remains positive. Domestically, the market continues to digest the ECB’s recent 25bp rate cut to 2.50% at their April 17th meeting, with a mild easing bias maintained. Dovish expectations are being fueled by softening wage trackers and services HICP near 3%, which are solidifying the doves’ base case for a follow-up cut. The German 2-year Schatz yield is down 3bp on the day at 2.519%, while the 10-year Bund is down 2bp to 2.959%, indicating a flattening bias in the German curve.
- ECB’s de Guindos this morning highlighted the importance of deepening financial integration to support Europe’s prosperity.
- Money markets are pricing in approximately 50bps of ECB rate cuts by year-end, with a 75% chance of the first move in June.
- Speculative positioning remains modestly long EUR, with net non-commercial contracts at +35,712 (10th percentile), suggesting squeeze potential remains limited.
NY session focus: The main event for the NY session will be the 08:30 ET release of US Unemployment Claims, with a forecast of 205K versus a previous 189K. A significant miss to the upside could further pressure the dollar and lift EUR/USD towards 1.1800, while a beat could see a retest of the 1.1745 level. The US 10-year yield currently trades at 4.316%, down nearly 3bp on the session, and further downside would likely fuel the EUR/USD rally. The pain trade would be a surprise hawkish signal out of Europe, or a strong US jobs number that puts the Fed back in focus.