Where we are: The Single Currency has rallied hard into the London midday, currently trading at $1.1600 as it probes its highest levels since early June. The overnight session saw the pair consolidate its recent gains, holding comfortably above the 1.1550 level before launching an assault on the 1.1600 figure. Technically, a clean daily close above $1.1600 opens the path toward the psychological $1.1720 resistance area, representing a complete reversal of the late-spring sell-off. This upward momentum follows a soft close for the US Dollar Index on Friday at 119.5073, which gave the Euro a solid launching pad.
What’s driving it: The Eurozone’s domestic macro resilience and a cautious European Central Bank are driving the currency’s recovery. While the ECB’s deposit rate sits at 2.50% following the April cut, the domestic economy is showing signs of pulling through OK, reinforced by a newly approved US trade deal that staves off tariff threats. This fundamental floor is being amplified by the sharp plunge in WTI crude to $95.00/bbl following the US-Iran peace agreement, which cools Eurozone imported inflation expectations and cushions the terms of trade.
- The Eurozone’s core HICP holding at 2.3% alongside a softening wage tracker keeps the ECB’s easing bias strictly data-dependent, with today’s speech by Philip Lane (13:10 CET) highly anticipated for any pushback against aggressive back-to-back cuts.
- EU lawmakers’ approval of the long-delayed US trade agreement removes a major structural overhang for the export-heavy Eurozone economy, reducing bilateral tariff risks with the US.
- CFTC speculative positioning has been severely washed out, with net non-commercial long contracts collapsing by 34,934 w/w to just +13,932 (the 6th percentile of the 52-week range), leaving the market structurally short-handed and highly vulnerable to a sharp short-squeeze.
NY session focus: As we head into the New York open, all eyes are on the US macro slate at 08:30 ET, where any soft prints will accelerate the DXY slide and fuel the Euro squeeze. Key levels to watch include immediate resistance at $1.1620 and support down at $1.1540. The trade that is working is long EUR/USD spot, riding the momentum of washed-out shorts, while the trade at risk is chasing the energy sector given the plunge in crude to $95.00. The ultimate pain trade is a rapid squeeze back through $1.1680 that forces under-positioned real money to chase the rally.