Where we are: EUR/USD is trading around 1.0785, holding above overnight lows but below the prior NY close of 1.0800. The pair has traded in a tight range between 1.0770 and 1.0810 during the European session, showing limited directional conviction ahead of US data. Key support lies at 1.0750, while resistance is seen at 1.0825.
What’s driving it: The Euro is facing renewed downward pressure as markets continue to digest the ECB’s mild easing bias following last month’s 25bp rate cut to 2.50%. The prospect of further easing in June is keeping a lid on Euro gains, particularly if the wage tracker continues to soften and services HICP remains near 3%. Upward revisions to services inflation or a renewed spike in energy prices would likely prompt the ECB to pause, but the market is leaning towards another cut. Rising US yields are adding to the pressure, with the US 2Y yield at 3.95% and the 10Y at 4.42%, further widening the transatlantic yield differential.
- ECB’s mild easing bias preserved, keeping the door open for a potential follow-up rate cut in June.
- Eurozone HICP at 2%, core HICP at 2.3% as of last December, giving doves room to argue for further easing.
- Speculator positioning in Euro remains modestly long at +32,202 contracts, representing 3.9% of open interest.
NY session focus: All eyes are on the US data releases at 08:30 ET, with Core PPI and PPI figures expected to show inflationary pressures. A stronger-than-expected print could fuel further dollar strength and push EUR/USD lower towards 1.0750. Keep an eye on the US 10Y real yield which has risen to 1.95% and is acting as a headwind for gold and broader risk sentiment. Later at 14:30 ET, the Fed Chair Nomination Vote is expected to pass without incident, but any surprises could trigger volatility. The trade to watch is short EUR/USD on hawkish data, while the risk is a dovish surprise that triggers a short squeeze. The pain trade is a sustained move above 1.0850.