EURUSD Soaring on Diverging Fed/ECB Outlooks
ECB’s Hawkish Cut
EURUSD remains well supported today ahead of the NFPs this afternoon. Yesterday, the ECB cut rates by a further .25%, as expected, though signalled that its easing phase was nearing completion. Lagarde cited a volatile and uncertain global environment as part of the reason why inflation was now expected to take longer-than-anticipated to return to the bank’s 2% target. The ECB said it will now take a “more evolutionary” approach to managing inflation, outlining that decisions will not follow a set monetary policy path and will instead react to incoming data.
ECB/Fed Divergence
These comments, which clearly fell on the hawkish side, have seen EUR buying continue today with EURUSD now up almost 5% on the week. Alongside the strength in EUR, linked to a shift in ECB outlook, a weaker US Dollar has helped the rally. In contrast with the ECB outlook, Fed easing expectations have risen recently in response to weaker data, putting pressure on USD. Looking ahead today, traders will be watching the latest set of US labour market readings. If we see any further weakness, near-term easing expectations will increase again, widening the divergence between the market’s Fed/ECB outlook and amplifying the sell-off in USD.
Technical Views
EURUSD
The rally in EURUSD this week has seen the market breaking out above the 1.0515 and 1.0724 levels this week. Price is now retesting the underside of the broken bull trend line with the 1.0931 level sitting just above. While some correction is likely near-term, focus remains on a further push higher while 1.0724 holds, in line with bullish momentum studies readings. 1.1209 sits as the longer run bull target for this move.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.