The Euro (EUR) is entering Wednesday’s NA session flat against the US Dollar (USD) and attempting stabilization in the lower 1.16s, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.
Markets consider Fed/ECB risks & vulnerability from sizeable EUR long
“The outlook for relative central bank policy has shifted somewhat against the EUR, as markets have softened their expectations for Fed easing in the aftermath of Tuesday’s US CPI. For the ECB, markets are neutral heading into next Thursday’s meeting and pricing no change in policy. This latest shift in EUR fundamentals leaves it vulnerable to a pullback, given that bullish speculative positioning has recently extended to the upper end of its historical range.”
“The options market reveals an erosion of the premium for protection against EUR upside and 3 month risk reversals appear poised to push into negative territory (pricing a premium for puts). Trade data revealed a stronger than expected surplus for May, and US/EU talks are ongoing however media are reporting of a more aggressive EU response with calls for the use of its ‘anti -coercion instrument’ which could include imposing taxes on US companies.”
“The EUR’s pullback has been notable and has delivered a considerable loss of momentum. The RSI is now around 50, a neutral reading. The multi-month bull trend has not yet been broken but we are concerned about the near-term risk of further weakness as we look to potential support at the April 21 high (1.1573) and the 50 day MA (1.1484). Near-term resistance is expected in the 1.1680/1.1700 range.”
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