EUR/USD: A lengthier consolidation phase looks increasingly likely – Credit Suisse

EUR/USD is seen at risk of a lengthier consolidation phase. Notwithstanding,  economists at Credit Suisse stay negative for an eventual sustained break below the 2017 and YTD lows at 1.0350/41.

EUR/USD to suffer an eventual break below 1.0350/41 for a fall to parity

“We see increasing risk for a lengthier consolidation phase. A close above the 13-day exponential average at 1.0555 can add weight to this view for a recovery back to what we continue to see as more important resistance, starting at 1.0627 and stretching up to the 55-day average at 1.0652, which we continue to look to cap on a closing basis.”

“Only above 1.0774/88 would mark a ‘double bottom’ base and a more significant move higher.”

“Support is seen at 1.0470 initially, then 1.0445, below which should clear the way for a retest of 1.0358/41. An eventual break below here should act as the catalyst for a resumption of the core downtrend with support seen next at 1.0217/09 and eventually parity/0.99.”

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 EUR/USD: Unlikely to push higher as the ECB still focusing on ‘gradualism’ – TDS

As broadly expected, the ECB left rates unchanged today.  What’s more, the European Central Bank (ECB) has signaled its intent to raise rates by 25 bps in July but left the door open to a 50 bps move in September. Still, economists at TD Securities do not believe that the EUR/USD is ready to push higher.

EUR/USD is at risk of returning to sub-1.07 If Lagarde cannot sound more hawkish

“ECB institutionalized dovishness wins out by essentially saying that it ‘intends to’ hike by 25 bps in July.” 

The ECB did throw a bone to the hawks by opening the door to a 50 bps hike in September if high inflation is sustained. But, with the ECB still focusing on ‘gradualism’ and a small upgrade to 2024 inflation (to 2.1%), we do not get the sense that EUR/USD is ready to push higher, particularly with the risk of a stronger US core CPI read tomorrow (on a MoM basis).”

“If Lagarde cannot sound more hawkish in the press conference, EUR/USD is at risk of returning to sub-1.07.”

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GBP/USD consolidates in mid-1.2500 amid holiday thinned trade pre-US jobs data

GBP/USD is trading subdued above 1.2550 amid holiday-thinned trade head of the release of key US jobs data.

Evidence of cooling of US wage pressures could hit the buck and help GBP/USD challenge weekly highs.

But the differential between US/UK growth and Fed/BoE tightening expectations makes a longer-lasting rebound more difficult.

With FX markets in wait-and-see mode ahead of the release of official US labour market data for the month of May at 1230GMT and with volumes further hampered amid a second day of market closures in the UK (London being the world’s top FX trading hotspot) as celebrations for the Queen’s platinum jubilee continue, GBP/USD is trading in subdued fashion and flat on the day just above the 1.2550 level.

That leaves the pair about equidistant between earlier weekly highs in the mid-1.2600s and Wednesday’s lows in the mid-1.2400s, as well as equidistant between the 21-Day Moving Average to the downside near 1.2450 and the 50DMA to the upside just above 1.2700. FX market volatility is expected to pick up if there is a significant deviation from expectations in the upcoming US jobs data release.

Analysts have highlighted wage growth metrics as the most important for traders to watch, given the ongoing debate about the state of inflation in the US (has it peaked yet?) and associated discussion about the outlook for the Fed policy outlook. Fed Vice Chair Lael Brainard set a high bar on Thursday for a pause in rate hikes in September following two 50 bps moves in June and July, though a slowdown to 25 bps moves is likely is the Fed does deem inflationary pressures to have eased.

In that regard, any evidence of easing wage pressures (which often then lead to inflation) could see the US dollar weaken and GBP/USD challenge weekly highs once again. But amid the relatively more optimistic story regarding US growth versus UK, and continued expectations for the Fed to be far more hawkish than the BoE in the quarters ahead, the outlook for a sustained GBP/USD rebound, say back into the 1.2800 area of above, doesn’t look great for now.

US ISM Services PMI survey data for May is slated for release at 1400GMT (after the jobs data at 1230GMT) and should highlight robust continued growth in the dominant US service sector. Fed speak will then be back in focus from 1430GMT with more remarks from Brainard.

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EUR/USD looks offered but holds on above 1.0700, focus on Lagarde

EUR/USD extends the corrective downside near 1.0700.

The greenback regains poise amidst higher yields.

ECB’s Lagarde, US ISM Manufacturing next of note in the docket.

The offered bias remains well and sound around the European currency and puts EUR/USD under pressure near the 1.0700 mark on Wednesday.

EUR/USD focuses on Lagarde

EUR/USD sheds ground for the second straight session, as the recovery in the greenback appears to have picked up extra pace on Wednesday.

Indeed, the downtick in the pair comes amidst further rebound in US yields along the curve, while the German 10y Bund yields reached new 3-week tops past 1.15%.

No reaction around the euro after ECB’s Holzmann favoured once again hiking rates by 50 bps against the current backdrop of elevated inflation figures.

In the calendar, final figures showed the German Manufacturing PMI improve a tad to 54.8 in May and tick lower to 54.6 when it comes to the broader Euroland. Still on the latter, the Unemployment Rate remained at 6.8% in April. Later in the session, Chairwoman Lagarde will speak at a BIS event.

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Ukrainian Negotiator: Hard to say when next stage of direct peace talks will occur

 

Ukrainian Negotiator Mykhailo Podolyak told Reuters on Tuesday that events in Mariupol have made the negotiation process with Russia "even more complicated" and said that it is hard to say when the next direct peace talks will be possible. Russia is "seriously betting" on the second stage of its "special operation", he continued, adding that Russia aims to strengthen its negotiation position through its offensive in eastern Ukraine. 

Podolyak's remarks come after the unofficial start of the second phase of Russia's invasion of Ukraine began on Monday, with the country now focussing its attacking efforts in the east. Ukrainian officials on Monday said that Russian forces tried to break through their defenses along the Donetsk, Luhansk and Kharkiv fronts. 

USD/CAD holds comfortably above 1.2600 mark amid broad-based USD strength

• USD/CAD gained some positive traction on Monday, though lacked follow-through buying.
• Retreating crude oil prices undermined the loonie and extended support amid a stronger USD.
• The Fed’s hawkish outlook, elevated US bond yields, the risk-off mood all benefitted the buck.

The USD/CAD pair maintained its bid tone heading into the North American session and was last seen trading just a few pips below the daily high, around the 1.2630-1.2625 region.

A combination of factors assisted the USD/CAD pair to build on last week's goodish rebound from the 1.2520 area and gain traction for the third successive day on Monday. A modest pullback in crude oil prices weighed on the commodity-linked loonie and extended support to spot prices amid sustained US dollar buying interest.

Crude oil pulled back from the three-week high after data out of China pointed to economic weakness and fueled worries over slowing demand amid COVID-19 curbs. That said, concerns over tight global supply and a potential European Union (EU) embargo on Russian gas, helped limit the downside for the black liquid, at least for now.

On the other hand, the USD stood tall near the two-year high and continued drawing support from expectations for a more aggressive policy tightening by the Fed. Investors seem convinced that the Fed would hike rates at a faster pace to curb soaring inflation. This, along with elevated US Treasury bond yields, underpinned the buck.

Against the backdrop of the Fed's hawkish outlook, concerns that the worsening Ukraine crisis would put upward pressure on already high inflation pushed the US bond yields to a fresh multi-year peak. Apart from this, the risk-off mood - as depicted by a weaker tone around the equity markets - further benefitted the safe-haven greenback.

That said, relatively thin liquidity conditions on the back of a holiday in Europe held back bulls from placing aggressive bets. The USD/CAD pair, so far, has been struggling to find acceptance above the very important 200-day SMA, which, in turn, warrants some caution before positioning for any further near-term appreciating move.

There isn't any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, the US bond yields, along with the broader market risk sentiment, will play a key role in influencing the USD demand. Traders will further take cues from oil price dynamics to grab some short-term opportunities.

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GBP/USD supported above 1.3000 ahead of key US CPI release

GBP/USD continues to trade support to the north of the 1.3000 level in the run-up to the release of key US March Consumer Price Inflation data at 1330BST. Mixed UK jobs data released earlier in the session didn’t give cable traders much to go off of, hence the indecisive trading conditions that have prevailed thus far this session.

On the one hand, the UK jobless rate fell to a fresh post-pandemic low of 3.8% as expected in February, taking it even further below its pre-Covid levels. On the other hand, British earnings growth, when adjusted for inflation, slumped the most since 2013, highlighting the cost-of-living crisis faced in the UK even before the start of the Russo-Ukraine war and tax/energy price hikes as of Q2.

According to ING, "for the time being, this kind of data can probably support market expectations of a Bank of England Bank Rate above 2.00% by year-end (versus 0.75% currently)”. But the bank cautioned that any sterling strength as a result of BoE tightening expectations would likely play out versus the euro or yen, not the US dollar.

Indeed, the US dollar continues to trade on the front foot on Tuesday ahead of the release of US CPI data that should further reinforce expectations for Fed tightening. The DXY currently trades above 100 and just below its highest levels since May 2020 and more gains may be in store if the recent trend of higher US yields and lower US (and global) equities continues. ING think that in a continued strong dollar environment, GBP/USD is at risk of slipping towards 1.2850.

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GBP/USD remains on the defensive near three-week low, just above mid-1.3000s

The GBP/USD pair remained on the defensive through the early European session and was last seen trading just a few pips above the three-week low, around the 1.3055 region.

The pair witnessed some selling during the first half of the trading on Wednesday and dropped to the lowest level since March 16, though showed resilience below the mid-1.3000s. The US dollar gained traction for the fifth successive day and shot to a nearly two-year peak, which, in turn, exerted some downward pressure on the GBP/USD pair.

The markets seem convinced that the Fed would hike interest rates by 100 bps over the next two meetings to combat stubbornly high inflation. Moreover, Fed Governor Lael Brainard said on Tuesday that the US central bank could start reducing its balance sheet at a rapid pace as soon as the May meeting and provided a goodish lift to the buck.

Expectations for a more aggressive Fed pushed the yield on the 2-year US government bond, which is highly sensitive to rate hike expectations, to its highest level since January 2019. Moreover, the yields on the 5-year and the benchmark 10-year bonds jumped to their highest since December 2018 and April 2019, respectively.

Hence, the market focus will remain glued to the FOMC monetary policy meeting minutes, due for release later during the US session. In the meantime, fading hopes for a diplomatic solution to end the war in Ukraine and concerns about more Western sanctions on Russia over its alleged war crimes should benefit the safe-haven greenback.

The fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move for the GBP/USD pair. With technical indicators still far from being in the oversold zone, spot prices seem vulnerable to sliding back to challenge the YTD low, around the 1.3000 psychological mark.

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