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Euro-dollar

Today’s Notable Sentiment ShiftsEUR – The euro spiked higher on Thursday following the ECB’s decision to phase out its APP by Q3, pushing EURUSD briefly above the 1.11 handle. However, gains were short-lived, with focus quickly turning back to the Ukraine/Russia war and its economic consequences for the Eurozone. BK Asset Management argues the diverging economic outlooks between Europe and the US is causing the market to “price in a rate differential between the dollar and the euro.”
by thunderpips
1
Today’s Notable Sentiment ShiftsEUR – The euro gained more than 1.5% against the dollar on Wednesday as risk appetite returned to financial markets and energy and commodity prices eased from recent peaks that resulted from Russia’s invasion of Ukraine and the West’s retaliatory sanctions. TD Securities noted that the move was driven in part by recent reports that the EUR was discussing a joint bond issuance to finance energy and defence spending. Concluded that “looking at the options market, the signal there has been a reduction in downside protection for the euro, so that could be signaling that the market thinks we may be moving on from the very acute phase of the shock.”
by thunderpips
1
Today’s Notable Sentiment ShiftsEUR – The euro climbed from 22-month lows against the dollar on Tuesday, supported by expectations that the Eurozone will increase fiscal spending to help offset the economic effects of the Russia/Ukraine war. Bloomberg reported that “the European Union plans as soon as this week to jointly issue bonds on a potentially massive scale to finance energy and defence spending.” While Wester Union also argues that “the ECB president may acknowledge euro weakness as among the headwinds facing the bloc’s economy. That’s been enough to offer the euro at least a momentary reprieve.”
by thunderpips
1
EURUSD: Important Zone to Watch Next Week 🇪🇺🇺🇸 Hey traders, I remain very bearish biased on EURUSD. Next week pay close attention to a confluence zone between a horizontal structure and a falling trend line on 4h. That contracting area is our potential reversal zone. Let the price reach that and then look for a confirmation to short. Our confirmation is a price action reversal pattern. Only then a bearish move will be expected at least to 1.114 level. In case of a bullish breakout of the underlined zone, the pair may keep growing. ❤️Please, support this idea with like and comment!❤️
Short
by VasilyTrader
15
EUR USD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics The Russian invasion of Ukraine opens up a lot of uncertainty for the EUR. On one hand, the decision to ban certain Russian banks from SWIFT was expected to impact the EU negatively, but the decision to freeze CBR assets means the expected FX reserve sales of Euros (to try and prop up the RUB) might not happen. The other consideration is energy, with the SWIFT bans, any restrictions on energy sales from Russia would put pressure on already high inflation and increases stagflation risks of higher inflation but falling growth. That does cloud the med-term outlook for the EUR and means we are happy to hold onto a neutral bias for now. 4. CFTC Analysis Participants are building into EUR longs. Large specs have seen 9/10 week of net increases in longs, asset managers have seen 10/12 weeks of net increase in longs and leveraged funds have reduced net shorts for 11 weeks in a row now. It’s safe to say that the sentiment for the EUR has improved given positioning data. However, the risk here is also that a lot of new bullish sentiment could have built up at the wrong time. 5. The Week Ahead It’ll be a difficult juggle for the EUR next week amid very important econ data and geopolitics. Monday’s open can be messy, as further sanctions on Russia over the weekend is a negative for the EUR but freezing assets from the CBR could mean less chance of dumping EUR reserves to prop up the RUB. Also keep USD liquidity squeezes in mind as a big drain on USD liquidity could see the Fed opening up swaps and could end up pressuring the USD & supporting the EUR. On the data side there will be a lot of focus on Wednesday’s HICP print. The upward surprise in Jan’s HICP was enough to see unanimous concern among the GC according to Pres Lagarde. This past week, ECB’s Lane said the Ukraine crisis presents a big risk to much higher inflation for 2022, and that comes amid already much steeper upwards projections to staff forecasts. Thus, an upward surprise to this week’s data would put more pressure on the ECB to go ahead with a possible policy recalibration at the upcoming March meeting and should be a positive input for the EUR (despite the geopolitical risks). Market implied rate expectations have dropped to just above 30bsp, which means an upside surprise in price pressures can spark some higher repricing. With so many negatives priced into the EUR over the past few months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With peak hawkishness for the Fed arguably close to baked in for the USD, it’s been interesting to view the positioning unfold in the past few weeks. Even though the USD remains a net-long across large specs, leveraged funds and asset managers, it seems the EUR’s attractiveness has continued to grow and could mean more downside for the USD unless the Fed surprises even more hawkish, and the ECB stays dovish. Also keep safe haven flows in mind as the current geopolitical tensions does add another layer of complexity to the USD. 4. The Week Ahead Busy week ahead on the data front, with the ISM Manufacturing and Services, ADP national employment and of course the big one with NFP coming up on Friday. The recovery in recent data (Retail Sales & Industrial Prod) suggests a very similar covid bounce like we saw with Delta, and that point to a possible similar bounce in the ISM data this week. However, it’s important to keep in mind the growth trend is still tilted lower for the rest of 2022. Moving on to the jobs data, even though the headline ADP and NFP prints will as always garner attention, the bigger focus for the jobs data will arguably fall to the inflation prints like the Average Hourly earnings . The question is whether the data could beat enough to see markets pricing back a 50bsp hike, as probabilities for a 50bsp hike was sitting at just 26% on Friday. For now, it seems unlikely that a bigger than expected beat would seal the deal for a 50bsp move, especially given the recent uncertainty thrown into markets with Russia’s invasion of Ukraine. A lot can happen at the open given the weekend’s reports that the West has banned certain Russian banks from SWIFT and has also said they will freeze assets from the CBR . Given the volatility this could create in EM with the RUB. However, even though the geopolitical situation will be important for the safe haven USD, with the US and the Fed being more isolated, the data will still be important, with the bigger reaction expected on a miss as opposed to a beat, given the amount of hawkishness already priced for the Fed. Just be mindful that the ban on SWIFT could create a slowdown in USD availability which could see the Fed being forced to open up additional swap lines to ease demand, that was a negative when announced in 2020 and can be a trigger for lots of downside (with the EUR a possible big benefactor if that’s the case).
by thunderpips
4
EUR USD - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered verylittle surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Funding Characteristics As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially against high yielding EM. As more central banks start normalizing policy and rate differentials widen, the EUR’s use as a funding currency could add additional pressure in the med-term, but if rates start moving closer to 0% in line with rate expectations that could change some of that funding attractiveness. 4. CFTC Analysis It looks like the sentiment for the EUR has not only changed for large speculators or asset managers (both hold net-longs), but the past week’s data has also showed a reduction in net-short for leveraged funds as well. We think there is more room for the EUR to gain if the ECB makes a policy pivot in March, until then we’re patient. 5. The Week Ahead Very quiet week on the data side for the EUR with Markit Flash PMI’s on Monday the only real highlight. It’s been a while since PMI data has been market-moving for the EUR, but after the ECB’s Feb meeting and the focus on a possible policy recalibration at the March meeting the incoming data will carry more weight. The bigger focus will of course be on the incoming HICP print on March 2nd. Turing to the PMI’s, it might not be enough to fully convince markets of what decision the ECB will take at their March meeting, but a very solid beat across the board can be enough to spark some short-term upside in the EUR after the ECB’s recent comments as well as ongoing Russia/Ukraine tensions have weighed on the single currency. With so many negatives priced into the EUR over the past couple of months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. So, a solid beat in both German and French flash PMI’s might be worth a potential short-term trade in the EUR, but as always lets wait for the data to confirm. The other factor to watch is the ongoing tensions between Russia and Ukraine, where the idea of possible military conflict on the doorstep has seen some risk premium built into the EUR this past week, and further escalation or de-escalation will be in focus for the EUR (escalation expected to pressure the EUR and deescalation expected to be supportive). USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language were a lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis With the USD still sitting on the biggest net-long position for large specs and leveraged funds, the odds of mean reversion are always higher, especially with more than 6 hikes priced in for the Fed. However, if there is enough demand for safe havens due to further Russia/Ukraine challenges then positioning might not matter too much. 4. The Week Ahead It’s a relatively quiet week for the US on the data front. Tuesday kicks off with Markit Flash PMI’s where focus will be on whether the recovery in Retail Sales and Industrial Production was also felt in the forward-looking and sentiment-based PMI’s. In terms of USD reaction, as both are growth measures, there is the chance the USD sees a similar inverse reaction like we’ve seen with other growth measures in recent weeks. On the inflation side we do have the Fed’s preferred measure of inflation (Core PCE ) on the schedule for Friday. As the Fed has tunnel vision for inflation right now the print will be important for us to watch. After a solid beat in CPI and PPI the market is skewed towards an upward surprise, which means it will arguably take a very sizable move above maximum expectations to see a meaningful bullish reaction in the USD and US10Y , while it also means that a surprise miss, especially after CPI and PPI can have an outsized reaction to the downside for both. Fed speak will also be watched to see whether appetite for a 50bsp hike has grown. Keep in mind the Fed’s blackout period for the March meeting starts next week Friday (5 March), so any prep of a potential 50bsp move needs to be communicated clearly by the Fed before then in order to avoid jumping that type of surprise on markets when they don’t expect it. Risk sentiment will once again be a key potential driver for the USD given the heightened geopolitical risks around Russia and Ukraine. Any risk off flows from further fears of invasion or actual escalations should be supportive for the USD as the world’s reserve currency and a safe haven, while strong de-escalation is expected to be negative driver in the short-term.
by thunderpips
4
EUR/USD stabilising on the 1.1300 base... EUR/USD seems to be stabilising the newly formed base at 1.1300. A recent weekly candle from 2 weeks ago, formed extremely bullish in alingment with the recent fundamentals suggesting that there will be a medium term upswing in movement. Generally speaking a closure above the 1.1400 handle should signify a comfortable 100 pips into the 1.1500 region and beyond, and looking at the recent weekly chart, there are many confluences to suggest more upside action to come. Tomorrows trading news look relatively choppy concerning the dollar and should expect a fair bit of movement in the London session. Overall bias at current market price is bullish. We will update this pair over the coming days to see if there is a potential spot for opportunity around 1.1400.
Long
by FTUKcom