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EURUSD eyes monthly resistance ahead of ECBEURUSD holds onto the previous day’s bounce off three-month low, though with a lesser pace, towards a downward sloping resistance line from June 25 ahead of Thursday’s European Central bank (ECB) monetary policy. Although the policymakers are expected to stand pat, comments over the economic outlook will be the key to break the immediate hurdle surrounding 1.1810. While the sustained breakout could recall the 1.1880, any further upside will be less convincing until crossing 1.1920 resistance confluence including 61.8% Fibonacci retracement level of March-May upside and 200-day EMA. Meanwhile, 1.1770 and the latest low of 1.1750 could entertain the EURUSD bears during the fresh downside. Following that, the yearly bottom surrounding 1.1700 will be crucial. Should the pair sellers remain dominant past the 1.1700 threshold, November 2020 lows near the 1.1600 round figure will be in focus. Overall, EURUSD remains in a bearish trajectory but the ECB needs to speak dovish for the trend to last.
Short
by MTradingGlobal
1
What do we expect from EURUSD?EURUSD is currently in a downtrend on the H1 chart. We sent out multiple selling opportunities in this trend. Now we expect another downside move but... Before that we have ECB Interest Rate Decision. Those news could affect price by temporary taking price back to a higher levels. Any of those upside moves should end below 1,1880 in order for price to remain in a downtrend. And at this moment of price going back to the upside we could find the best risk to reward ratio trades! If price reaches 1,1800-30 and it then gives us a rejection signal then that will be a perfect entry opportunity. Before that all we're gonna be doing is wait and trade the other instruments. In case of price continuing lower, next target is 1,1700!
Short
by ForexTrendline
8
Portfolio: Long EURGBPI am going long EURGBP at 86.00 with a stop loss at 85.20 and a target of 88.60 using 2% of capital. I have already articulated in both the latest chart packs that we are seeing pressure on USD and US10Y. This is a good example for us to use to highlight the slightly more cautious tone in GBP. This selloff looks like it has run out of steam around 0.853x and should begin accelerating towards 2021 highs at 0.922x once we break the channel resistance ahead.
Long
by ridethepig
3
ECB & Fed: Checking The TurnWave 3 - Chapter I Introduction and general comments After clearing ECB & FED it is well known that hikes are cooking very creditably and the monetary side appears to be quite helpless in the endgame. The most well-handled analogy from poker is "checking the turn", both Powell and Lagarde showcased the ability to play this with skill. It may be in the nature of things for markets to gather first plenty of participation in the opening, but this problem for bears must be tackled as soon as possible. You must be aware that from the very start of June we have seen one way traffic for sellers, there are now stale leftovers compared with the feast that is cooking for buyers. The realisation will soon kick in that not enough time has elapsed for sellers to pack and defend the ladder appropriately, meaning a material occupation of control from buyers will trigger a slingshot higher as they cover quickly. Example 1 : Buyers were the most important actor present during the Covid Compression. They headed for the apex and at the same time eurobonds protected the base and propelled the swing into 1.20+. Example 2 : Here too from the zoomed out picture we can see how buyers control the flows and choose a 5 wave sequence, first targeting the 1.20xx main area which we cleared in the tweet, and second, the 1.25/1.26 area which can now be made more enterprising in Q3. The next move in play here is an impulsive wave from 1.185x => 1.25xx/1.26xx. Since the immediate expectation of inflation is now being forced via Fed, this is an exchange the ECB will lose. Breaking below 1.17xx will imply an imbalance between sellers and buyers.
Long
by ridethepig
20
Positional PlayA quick update to the Euro chart here after clearing the well known ECB positioning. This was the last thing we needed to mark a significant floor; anticipation of 1.176x (Strong Support) holding has clearly applied and for those building their own positions internally, protection is defined below March lows (1.168x) while targets above come into play at 1.217x and 1.250x. Admittedly we overshot the wave (2) slightly more than I thought, however, as has already been mentioned in the previous chart(s), we were neither tracking buyers nor sellers, rather what was essential this time around in my books, was macro positioning. What was needed was a fresh and energetic low to draw participants in before enough time elapsed for the fundamental side to materialise. If we set aside for a moment, a quick recap of the previous chart for the new readers here, this is what we were previously tracking, to set into motion the "teeing" off. So the positioning players now have picked their sides, buyers clearly are looking to make a freeing swing towards the 1.25xx handle and post their profits for the year, while sellers are now poorly positioned in terms of risk:reward, and those looking to breakdown need it to happen in such a way as to open the next leg lower in EURUSD in 2022 and beyond. In saying this, we must not get too far ahead, the move here we are tracking is a slingshot towards the topside with Dollar under severe pressure once more.
Long
by ridethepig
17
Eight-month-old support line test EURUSD bears on ECB dayEURUSD bounces off an ascending support line from November 2020 amid oversold RSI during early Thursday. However, sellers remain hopeful as MACD keeps flashing bearish signals ahead of the ECB’s special meeting. The bloc’s central bank is widely expected to repeat support for easy money policies, likely extending the latest corrective pullback towards a two-week-old resistance line near 1.1870. However, any further recovery will be checked by the 200-day EMA surrounding 1.1930, as well as a four-month-long horizontal resistance near the 1.1990–2000 area. Alternatively, any surprise moves, coupled with the further covid-led risk-off mood, could drag the quote below the key trend line support around 1.1780. The same will drag EURUSD prices to the yearly low near 1.1700 before highlighting the November 2020 low of 1.1602. It’s worth noting that the US dollar’s safe-haven allure is likely to keep the major currency pair pressured even if the counter-trend traders benefit on Thursday.
Short
by MTradingGlobal
EUR/USD for July 05: FOMC Meeting Minutes Key for DirectionEUR/USD Daily Update for July 05. Here is what you need to know to trade the pair today. FUNDAMENTALS: A strong gain in jobs but rising unemployment rate and unchanged wages in the US led to some selling pressure in USD, but profit-taking ahead of the extended weekend and US holidays was likely the key driver of US weakness on Friday. Look for a short-term correction, but the direction for USD will likely continue to be bullish. In the euroarea, wories about the new Delta virus variant and softer German PMIs could extend the downtrend in EURUSD. The FOMC Meeting Minutes on Wednesday will be a key event for the future direction of the pair, as markets will scrutinize how Fed hawks and doves are arguing their cases for a potential rate hike in 2022. For now, there is little reason for markets to lower their Fed hiking expectations. Latest Headlines: USD News: US Dollar Index remains on the defensive near 92.20 US Dollar Index Price Analysis: DXY probes rising wedge breakdown above 92.00 US inflation expectations fade recovery moves Fed and ECB events to keep an eye on this week EUR News: EUR/USD to resume its falls amid covid worries and a rethink about the Fed's moves Eurozone Sentix Investor Confidence improves to 29.8 in July, misses estimates Eurozone June final services PMI 58.3 vs 58.0 prelim Germany Markit Services PMI came in at 57.5, below expectations (58.1) in June Germany Markit PMI Composite below expectations (60.4) in June: Actual (60.1) Upcoming Market Reports: Here are the most important market reports for EUR/USD to follow in the coming days (all times are UTC timezone): Monday at 12:00: USD Bank Holiday Tuesday at 09:00: EUR ZEW Economic Sentiment (Expected: 79.0 , Previous: 81.3 ) Tuesday at 09:00: EUR German ZEW Economic Sentiment (Expected: 75.0 , Previous: 79.8 ) Tuesday at 14:00: USD ISM Services PMI (Expected: 63.9 , Previous: 64.0 ) INTERMARKET: 2-year yield differentials point at further downside potential in the EURUSD pair. SENTIMENT: CoT: The net positioning in EUR among leveraged money remains bearish, although this category of traders reduced their bearish bets in the previous week. USD positioning (as measured by the value of total contracts) is less bearish after the Fed adopted their hawkish stance, although the majority of traders are still short on the currency. Watch out for a short-squeeze here. Positioning is bearish for EUR/USD. TECHNICALS The pair broke above a longer-term bearish trendline on the 1-hour chart, although on quite light volume. The overall trend remains bearish until we see a break above the 1.1974 level, which also acts as a key resistance to the upside. Other levels to watch: Major resistance: 1.1974 Minor resistance: 1.1900-10 (61.8% Fib) Minor support: 1.1852 Major support: 1.1805 (last week's low) == SUMMARY == From a fundamental standpoint, the pair has potential to move towards 1.17 during the week, but a short position can only be established if we get a clear signal that the bearish trend is resuming. Please hit the 'LIKE' button if you find this post useful. Also, don't forget to follow to get more trade ideas like this. Thanks!
Short
by MujkanovicFX
EUR/USD: How to Trade the Next Week 📈Hi traders. After we closed our last EURUSD trade in profit, it's time to look for trading opportunities in the coming week. Here is a complete FIST analysis for the pair with some tips on how to trade the next week. FUNDAMENTALS: EUR traded with a heavy bearish bias last week as markets supported the USD ahead of the US labor market report, the weekend, and the US holiday next week. Now that the NFP came in stronger than expected, the EURUSD pair could see further weakness despite the rise in US unemployment rates and pressure on wages. The FOMC meeting minutes, due on Wednesday, will likely attract attention as markets will follow how hawks and doves are arguing their cases, especially the seven hawks who see the first rate hike in 2022. In the euroarea, the main highlights for the next week are Sentix and ZEW sentiment reports. Although there are some factors that could lead to EUR strength, the dovish stance of the ECB is likely to provide further selling pressure in the currency, at least until we see some strong hard data from the eurozone. Latest Headlines: Here are the latest news headlines for both currencies. USD News: - US dollar moving to new lows. Now the weakest of the major currencies - US factory orders for May 1.7% versus 1.7% estimate - US stocks are opening higher after less scary jobs report - US Dollar Index retreats from tops post-Payrolls, back around 92.40 - US Dollar Index Price Analysis: Next on the upside comes in 93.50 - USD needs a much larger surprise on NFP to sustain further gains – TDS EUR News: - EUR/USD stages limited rebound after US NFP data, stays near mid-1.1800s - EUR/USD bounces off fresh lows, retakes 1.1850 post-NFP - EUR/USD Price Analysis: Looks offered and could slip back to 1.1800 - EUR/USD: Key resistance at 1.1976/2001 to cap even on NFP miss – Credit Suisse - Eurozone May PPI +1.3% vs +1.2% m/m expected - EUR/USD stays weak, approaches 1.1800 ahead of Lagarde, NFP Upcoming Market Reports: USD: ISM services (Jun), JOLTS jobs openings (May), FOMC Minutes, Initial jobless claims (Jul), Wholesale trade sales, inventories (May) EUR: Services PMI (Jun), Sentix investor confidence (Jul), ZEW survey (Jul), Retail sales (May), German Industrial Production (May), German Trade, current account (May) INTERMARKET: Although the USD and UST yields had a sluggish performance on Friday following the labor market numbers, I feel that US yields will remain supported throughout the next week (the FOMC meeting minutes will be a key event to follow for this.) The US weakness on Friday was likely the result of profit-taking ahead of the US Independence Day. German/US yield differentials diverged slightly from the exchange rate to the downside. TECHNICALS Price-Action: The EURUSD pair traded with a strong bearish bias in the last week within a well-defined downtrend. On Friday, the price closed after a short retest of a falling trendline, where sellers started to join the market. Another horizontal resistance (Thursday high) can be seen just above the trendline at 1.1885. Volume: Trading volume spiked on Friday after the NFP report, but the result in terms of market movement was rather weak. A strong bullish candlestick formed just before the market close on low volume and low liquidity. == SUMMARY == EUR/USD is mildly bearish with the potential to stretch below the 1.18 level during the next week. I would change my short-term bearish bias if the price breaks above the trendline and horizontal resistance (1.1885). Please hit the 'LIKE' button if you find this post useful. Also, don't forget to follow to get more trade ideas like this. Thanks!
Short
by MujkanovicFX
2
EUR/USD FIST Update - June 28Hi traders, here is a full update for EUR/USD. Please hit the 'LIKE' button if you find this post useful. Also, don't forget to follow to get more trade ideas like this. Thanks! TECHNICALS The EURUSD pair broke below a long-term trendline on the daily chart following the FOMC meeting, with the correction losing steam at the broken trendline, which now acts as resistance. The 1-hour chart shows a push below a short-term trendline in a pattern that resembles a bearish wedge, signaling further weakness. Volume: The daily bars that form that corrective move occurred on lower volume. The strong bearish candlestick on the 1-hour chart that formed today (high volume), as well as the following bullish 1-hour candlesticks (high volume but weak movement) are a bearish signal for the pair. Levels to follow (Liquidity): Important resistance: 1.1975 (last week's high) Important support: 1.1900 (daily low and round-number support) FUNDAMENTALS: Latest Headlines: USD News: US Dollar Index looks for direction around 91.80 Fed's Rosengren: You don't want too much exuberance in the housing market US air strikes against Iran-backed militia in Syria and Iraq EUR News: ECB's Holzmann: PEPP will end when virus emergency is over ECB's Holzmann: We don't know yet what price path will bring EUR/USD stays consolidative near 1.1940 Resistance at 1.1998/1.2007 to cap for a move back to 1.1847/24 – Credit Suisse Risk of second-round inflation effects remains limited Upcoming Market Reports: Here are the most important market reports for EUR/USD to follow in the coming days: Tuesday at 07:03 (GMT): EUR Italian Bank Holiday Tuesday at 14:00 (GMT): USD CB Consumer Confidence (Expected: 118.9 , Previous: 117.2 ) Wednesday at 09:00 (GMT): EUR CPI Flash Estimate y/y (Expected: 1.9% , Previous: 2.0% ) Wednesday at 12:15 (GMT): USD ADP Non-Farm Employment Change (Expected: 555K , Previous: 978K ) Wednesday at 13:45 (GMT): USD Chicago PMI (Expected: 70.2 , Previous: 75.2 ) Wednesday at 14:00 (GMT): USD Pending Home Sales m/m (Expected: -1.1% , Previous: -4.4% ) Wednesday at 14:30 (GMT): USD Crude Oil Inventories (Expected: , Previous: -7.6M ) INTERMARKET: Yield differentials in the short-term: Bearish == SUMMARY == Fundamentals and technicals point at further weakness in EURUSD. We remain bearish on the pair.
Short
by MujkanovicFX
2
EURAUD Short- Respect For Topside Liquidity- ECB TodayOnce again EURAUD has respected the top side only taking out the former highs before showing weakness and beginning to roll over. This offers a great RR set up and the prevailing market sentiment suggests a recovering Dollar and a stronger bond market out of the gate this morning which perhaps suggests continued weakness in the Euro. The German Buba report will be in an hour and could create some smaller time frame volatility in the Euro as projections are announced. Later today the head of the European Central Bank will be speaking and will likely touch on some important points. Trade accordingly. Another thing to consider, is if there is considerable upside momentum, marketing in to a buy order. This could offer a quick scalp if there is enough pressure with plenty more liquidity to be chased down on the topside.
Short
by crawfordpaul
1
#EURCAD: Bottom's inI suspect the $EURCAD cross pair is reversing in the weekly timeframe here, we might see a substantial rally as oil could be peaking here, and the $Euro is oversold. The setup calls for a potential rally to 1.53, with risk down to 1.47 if the trade fails. Ideally you try to get in on dips after the market is open, keep an eye on price action for an entry. Alternatively you can average in during the day to not be left out in case there's no retrace. Cheers, Ivan Labrie.
Long
by IvanLabrie
3
ridethepig | EURCHF into 1.14The concept of this complete or at least partially supported euro structure In this swing, there are three actors: 1 . the support which is acting as a pivot 2 . the opposing resistance which is being targeted 3 . the breakout trigger which will provide momentum The breakout here is attacking the soft resistance at 1.14 which is +/- 4% from current levels and 1.20 next year. So buyers are standing in deep value levels with the two targets mentioned. The structure underneath is generally of royal blood, buyers put a lot of time into the plumbing of these levels and are not fearful of hiding behind one another - thus the short space between strong and soft support. If this lacks the mobility to break out and is an absolute chop fest then we can make the executive decision to make no move of any sort. If on the other hand, the momentum kicks in as I am expecting, we can move to 1.14 with little pushback over the coming weeks and months. The diagram illustrates the long-term map. Here the flow towards 2018 highs is underway with the European rebound and we are only "partially" into wave 3. This means we can confidently lean on the macro direction as Swiss outflows are set to continue with CHF cooked as a low yielder for the next few years. For those tracking the SNB reserve activity closely, they are going to get a lot more active in Q3 (a lot similar to Q1).
Long
by ridethepig
5
EUR/USD FIST Analysis for June 14: What you need to knowHi traders, here is an update for EURUSD for today and the current week. We analyzed fundamentals, yields, sentiment, and technical levels and showed how we would trade the pair. Enjoy! FUNDAMENTALS: Top Headlines for June 14: US Dollar Index clings to gains around the 90.00 region US President's infrastructure spending proposal in focus US Dollar Index Price Analysis: DXY extends bounce off nearby support line to tease 90.00 EUR/USD to bask a recovery as the inflation monster is not as scary as it seems France Current Account above forecasts (€-2.7B) in April: Actual (€-1.4B) France Imports, EUR: €46.851B (April) vs €46.05B Upcoming market reports: Date - Report - Forecast - Previous - Impact 0 2021-06-15 12:30 UTC USD Core Retail Sales m/m 0.4% -0.8% High 1 2021-06-15 12:30 UTC USD Retail Sales m/m -0.6% 0.0% High 2 2021-06-15 12:30 UTC USD PPI m/m 0.5% 0.6% High 3 2021-06-15 12:30 UTC USD Core PPI m/m 0.5% 0.7% Medium 4 2021-06-15 13:15 UTC USD Industrial Production m/m 0.6% 0.7% Medium 5 2021-06-16 14:30 UTC USD Crude Oil Inventories X -5.2M Medium 6 2021-06-16 18:00 UTC USD FOMC Statement High 7 2021-06-16 18:00 UTC USD FOMC Economic Projections High 8 2021-06-16 18:30 UTC USD FOMC Press Conference High 9 2021-06-17 12:30 UTC USD Unemployment Claims 360K 376K Medium 10 2021-06-17 12:30 UTC USD Philly Fed Manufacturing Index 31.2 31.5 Medium There is no high-impact or medium-impact news scheduled for EUR this week. INTERMARKET: EURUSD is trading well in balance with 2-year yield differentials. However, the US yield curve has shown falling yields for all maturities in the last 5 trading days, which could further increase selling pressure in the USD (bullish for EURUSD). The USD index has also failed to break above the weekly 90.60 resistance this morning. Currency Strength Index: While not a top-performer, EUR is trading near daily highs as positive risk sentiment generally favored risk currencies this morning. The US dollar has entered a short-term downtrend, signaling further upside potential for EURUSD. TECHNICALS Price-Action: The EURUSD pair found support at the 61.8% Fib level of the latest daily impulse move and formed a double bottom pattern on the short-term chart. Buyers started to push the price higher as the USD gave back some gains from Friday. The gains were made on relatively low volume, signaling that selling power and/or liquidity was quite low. == HOW TO TRADE? == We favor a long position in EURUSD given the strong support at the 61.8% Fib level and the double bottom pattern. Lower inflation fears and a Fed that could be on hold on Wednesday (potentially further postponing quantitative tapering) could provide a strong bullish move in the EURUSD pair. Please hit the 'LIKE' button if you find this post useful. Also, don't forget to follow to get more trade ideas like this. Thanks!
Long
by MujkanovicFX
Any upside in the DXY is likely to prove fleeting - WestpacEvent Risk: May CPI the key risk event, many braced for another blowout number. Fed enters blackout period ahead of their 16-17 June meeting. Bias: -DXY stabilizing ahead of key risk events in the next week: payrolls, CPI and ECB. A USD friendly mix can be stitched together: whisper talk into payrolls is more reserved, the May CPI will surely reflect ongoing bottlenecks and reopening frictions, while Lagarde has signaled that the ECB is likely to extend pandemic asset purchases at EUR85bn for another quarter. -But any DXY upside potential likely proves modest while the Fed maintains patient guidance. Potentially stronger than expected May payrolls and CPI won’t shake the Fed’s resolve. Admittedly more officials are warning to a tapering conversation, but any decision is still many months away. -Infrastructure talks remain congenial, the White House trimming their proposal to $1.7trn from $2.3trn and the GOP making a $928bn counteroffer. But key sticking points remain on hard vs social infrastructure and how to fund it. -DXY still a sell on strength, looking for fresh 2021 lows on a 3 month horizon.
TVC:DXY
by thunderpips
3
EUR/USD FIST Outlook for the Next Week 📈BULLISH FOR THE PAIR: 1. Market reports: German Manufacturing and Services PMI beat estimates, Business and Consumer confidence are rising. US PMIs and Consumer Confidence are also up, but the USD is currently more focused on yields and risk sentiment. News: Accelerated vaccination efforts in the eurozone to support the EUR against other currencies. Risk Sentiment: Risk sentiment is likely going to be supportive for the EUR in the coming week due to higher vaccination rates. New German lockdown measures had a muted impact on the pair. Technicals: Technicals look very bullish with Friday's close. Strong bullish candle on the weekly, fresh higher high, and previous retest of the 61.8% Fib level. Buying seems supported by higher volume. Pair reaching 6-week high. BEARISH FOR THE PAIR: Yields: Yield differentials between German Bunds and US Treasuries point to the downside. Looks quite bearish. Currency Strength Index: EUR is the strongest for the week, USD the weakest. Looks like mean reversion could drive the pair lower in the next week. Futures Positioning: Large speculators are becoming more bullish on the USD. Shorts were cut by 2.5K contracts. Longs in EUR were cut by 1.5K contracts, shorts by 0.9K contracts. == HOW TO TRADE? == While profit-taking activities and yield differentials could drive the pair lower from current levels, pullbacks look like a nice opportunity to buy. Only a fall below 1.2000 would turn the bias bearish. The 1.618% Fib extension could be on the table. Please hit the "LIKE" button if you find this post useful. Also, don't forget to follow to get more trade ideas like this. Thanks!
Long
by MujkanovicFX
9
Dax - Short Pre ECBThe Dax's phenomenal rally from pandemic lows has seen the index almost double in just over 12 months on the back of ECB quantitative easing. However, there are growing calls amongst the more hawkish members of the ECB's governing council for bond purchases to be scaled back as inflation and economic growth is expected to increase in the coming months. However, even though we don't expect any major announcements at this afternoon's press conference this coupled with choppy markets could instigate a sharp reversal towards support at 14,000.
XETR:DAXShort
by KQMarkets
ECB meeting in spotlightEUR/USD is having a rare day in negative territory. Currently, the pair is trading at 1.2006, down 0.24% on the day. The euro has been in fine form in April, racking up gains of 2.3%. The currency has made up most of the ground lost in March when EUR/USD fell by 2.8%. The direction of the US dollar has, to a large degree, been dependent on 10-year US Treasury yields. In March, yields moved higher and provided the dollar with a lift. Conversely, with yields retreating in April, the dollar has suffered broad losses. The ECB holds its policy meeting on Thursday (11:45 GMT), and the central bank is widely expected to hold the course on monetary policy and leave the main financing rate at 0.00%. With the developed economies expected to show significant recovery in 2021, there have been rising concerns about taper tantrums, once central banks change their ultra-accommodative stance, which has been put in place in order to deal with the severe economic downturn caused by the Covid-19 pandemic. This is unlikely to be an issue with the ECB, which appears determined to continue fiscal and monetary support for the eurozone until the recovery is well underway. Once that occurs, the ECB can be expected to reduce purchases under its emergency pandemic programme (PSPP), while continuing its traditional QE programme, under which the ECB has been purchasing bonds in the amount of EUR 20 billion/month throughout the Covid pandemic. With the upcoming ECB meeting expected to be a"snoozer", the meeting could well be a non-event for the euro. It has been a good week for the euro, which punched past the symbolic 1.20 level this week for the first time since March 4th. The currency could get a bit of a boost if ECB President Christine Lagarde's comments after the meeting are more optimistic than expected. EUR/USD is testing resistance at 1.2027. Above, there is resistance at 1.2073. On the downside, there is support at 1.1903 and 1.1825
by OANDA
EUR and ECB: Dovish for bonds, but not for EURECB frontloading PEPP purchases isn’t a negative for EUR/USD. It helps to underscore the latest market narrative of tentative stability in core bond yields, in turn taking away support from USD. EUR/USD to move above 1.25 in summer. The main winner from the subsequent stability in core bond markets is EM FX, mainly the high yielders that got hit last month. Frontload PEPP purchases is not bad news for EUR/USD The European Central Bank surprised with the announcement of frontloaded Pandemic Emergency Purchase Programme (PEPP) purchases (see ECB Review), but in terms of the dovish impact on underling eurozone assets, this is more a story for the eurozone bond market than the euro itself. As we argued in the ECB Cribsheet, as long as the whole PEPP envelope is not extended, the negative impact on the euro should be limited as this only changes the pace of the bond purchases, but not the overall size. For a more meaningful (negative) impact on the euro, the size of the PEPP envelope should have to be increased. Such a potential move from the ECB is still rather far away and unlikely, in our view. If anything, the ECB decision to lean against the rising bond yields is a positive for EUR/USD as more bond buying helps to underscore the very latest market narrative of the tentative stability in core bond yields. This in turn is (a) negative for USD, the key beneficiary of the UST sell-off in February (largely because it triggered a positioning squeeze in G10 and EM currencies) and (b) positive for cyclical FX and also for EUR/USD. Moreover, the fact that the ECB language is now less downbeat (‘’risks have become more balanced’) has also helped to offset any dovish impact from frontloading the PEPP purchases on the euro. Constructive EUR/USD outlook We reiterate our bullish EUR/USD view. Not only does today’s ECB decision help to limit the key USD tailwind of late (sharply rising UST yields), but as the eurozone economy starts to recover in the second quarter (with the pace of vaccination set to increase), EUR/USD should start moving higher, further helped by the deeply negative US front-end real rates (note: US CPI should push above 3.5% during 2Q). We thus expect EUR/USD to move above 1.2500 this summer. EM FX the big beneficiary from ECB attempt to stabilise the bond market The big winner from the ECB's decision to front-load PEPP purchases should be Emerging Market FX. This FX segment was under material pressure in February as the UST sold off. But now, with another hint at stability in the core bond market, EM FX will be given some more breathing room. With most of the EM currencies trading in undervalued territory and local EM bond markets selling off throughout February, this now offers good entry points – mainly for EM high yielders which got particularly exposed via the bond channel during the February sell-off. The expected rise in EUR/USD is also a favourable factor for the low yielding Central and Eastern European FX, which should benefit from the EUR/USD overlay. We continue to see CZK as the most attractive currency in the region as the Czech National Bank remains hawkish (and should hike rates twice this year), the currency is undervalued vs EUR and the Czech current account should remain in surplus this year. Original Article: think.ing.com By Petr Krpata, CFA, Chief EMEA FX and IR Strategist at ING. think.ing.com Content Disclaimer: The information in the publication is not an investment recommendation and it is not an investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. This publication has been prepared by ING solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. Read more: think.ing.com
by ING_Think
1