Where we are: EUR/USD trades at 1.1692, down 0.26% on the day, after a volatile overnight session between 1.1678 and 1.1727. The Fiber is struggling to hold above intraday lows and is testing the lower end of its recent range. A break below 1.1678 would expose the 1.1650 level, while resistance remains up at 1.1727.
What’s driving it: The mildly dovish tilt from the ECB continues to weigh on the Euro. Despite holding steady this month, last week’s 25bp cut to 2.50% and the commitment to a meeting-by-meeting approach leave the door open for further easing in June. Disappointing Eurozone economic data continues to build the dovish case, with the ECB’s own survey pointing to tighter lending conditions. Downside pressure has been exacerbated by a stronger dollar, with the DXY currently at 98.58, and rising US yields.
- The ECB Consumer Expectations Survey for March and April’s bank lending survey both highlighted tightening financial conditions in the Eurozone.
- German 2-year Schatz yields are up 4bp to 2.629%, a relatively muted response that is failing to provide meaningful support to the Euro.
- Speculative positioning remains modestly long at +41,324 contracts, but the rise of +15,306 contracts w/w indicates increased vulnerability to a downside surprise, especially if US data prints hot.
NY session focus: All eyes are on the 10:00 ET release of US CB Consumer Confidence. A stronger-than-expected print could fuel further dollar strength and pressure EUR/USD towards 1.1650. Conversely, a weaker print could offer a temporary reprieve, potentially pushing the pair back towards 1.1727. The US-DE 10Y yield spread, currently at +129bp, continues to act as a major headwind for the Fiber. The trade that’s working is short EUR/USD on bounces. The pain trade is a weak US confidence number alongside dovish ECB comments triggering a short squeeze.