We seem to be in for a pretty classic setup here to start the new month. Traders are shifting from USD to DM and EM currencies. The return of USD weakness, which should allow EM FX to perform better. This pushing EURUSD higher ahead of June ECB meeting.
Overnight, the Dollar lower against the G10 currencies and ended the session on a weaker note. Barring MXN, weakness was visible against all DM and EM currencies. The Fed official Bullard called for a rate cut, USDX lost 50MA aswell.
In terms of macro data from last week, the Gfk consumer climate index was little weaker than expected. “German consumer mood almost unchanged in May” according to the official data.
June GfK is predicting a consumer climate value of 10.1 points, bs 10.2 in May.
Looking at the week ahead, it will be a busy week of EA data and US data. We will see EA inflation, GDP, and ECB meeting. Besides, Powell’s speech and NFP sits at the top of the agenda.
The euro traders are waiting for Thursday’s ECB meeting (June 06). We expect it will maintain its easing bias, with no new additional stimulus measures announced.
ABN AMRO economists said in a note “Further ECB downgrades and action beyond June.” In a publication ABN AMRO said “TLTRO to be priced at -0.4%, while dovish tone should leave door open to further stimulus – The focus of this week’s Governing Council meeting will be on: (i) the details of the TLTRO-III (ii) the ECB’s views on whether action is needed/will be taken to alleviate adverse effects on the banking system of negative rates (iii) how it sees the overall outlook and hints at the prospect of further stimulus in coming months”.
Analyst Jan von Gerich at Nordea said “We expect that the ECB will extend its forward guidance, however markets are already pricing a clear probability of a further rate cut from the ECB hence it should not be a major market mover. Extended forward guidance could still add some downside pressure on the euro and EUR rates.”.
The single currency is recovering from the double bottom placed at 1.1100 and closed out the last month with 0.40% gains. Over the course of this year, the euro weakened from the strong position it enjoyed early on, slipping to 1.11 levels.
Daily indicators being upbeat, watch out for new rebounds towards the resistance levels around 1.1270-1.1280 before those at 1.1325. There will need to be a breakout above these levels to envisage an extension of the pair’s ascent towards 1.1370 its 200MA and even 1.1500 as the risk of recession eased.
The single currency closed at 1.1240 overnight. The significant Pivot level, which will act as crucial support for the single currency, is placed at 1.1215, followed by 1.1140. On the upside, key resistance levels are placed at 1.1265, followed by 1.1325.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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