EUR Rallying After ECB
EURUSD is trading up at two-month highs today as a weaker US Dollar helps boost the pair. Last week, the ECB held rates unchanged at 2% and struck an upbeat tone on growth and inflation, leading traders to scale back near-term easing expectations. The market response reflects the ECB’s own guidance that is likely done or near done with its easing cycle. EUR has been well bid on the back of the meeting, despite some dovish ECB commentary on Friday as several members noted that downside risks remained and warned it was too early to rule out further rate cuts entirely. Still, money markets show little expectation of any further ECB rate cuts in the near-term.
FOMC Up Next
Looking ahead, focus this week will be on the FOMC tomorrow. USD is weakening today ahead of the meeting as traders ramp up dovish expectations on the back of recent US data weakness. In particular, the sharp downturn in jobs has prompted concern form the Fed and given the fresh weakness in the NFP last week, there is strong reason to suspect the Fed will have turned more ardently dovish. Should the Fed deliver with a rate cut tomorrow and signal that further easing is likely appropriate near-term. In this scenario, EURUSD should see fresh highs this week. However, if the Fed cuts while focusing on lingering inflation risks, downplaying easing expectations beyond this month, USD might see a squeeze higher near-term, capping EURUSD for now.
Technical Views
EURUSD
EURUSD is now breaking out above the triangle pattern which has framed recent price action. With momentum studies bullish, focus is on a test of the 1.1899 level next and 1.20 above. To the downside, 1.1589 remains key local support to watch.
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