EUR/USD rolling over
The world’s most popular currency pair had been consolidating recently off the lows, having taken us through big figures and key support after the hawkish Fed meeting a few weeks ago. Huge position adjustment and a short squeeze in the greenback had left the pair trading well beyond the lower Keltner channel and oversold on the RSI. The previous recent times when EUR/USD has traded through the lower band have seen a notable rebound, so price action over the past few days has acted as a healthy pause for breath easing the oversold conditions.
The ECB will be fairly content with this current period of dollar strength.
As the central bank divergence grows between the Fed and ECB, some heavy lifting for President Lagarde will get done with financing conditions potentially kept loose through the summer. Indeed, comments by the ECB continue to sound cautious with Lagarde recently striking a dovish tone again by stressing that rising market rates still pose a risk to the recovery, even mentioning rate cuts as a possibility.
Eurozone inflation data is released tomorrow with analysts forecast a reading of 1.8% from the 2.0% May print. Positive base effects from energy costs lie behind the recent rise in prices while recent PMI surveys pointed to strong inflationary pressures in June due to component shortages. That said, we note German CPIs have come in broadly softer today.
It is significant that some of the hawks at the ECB have echoed the common view that price pressures are temporary. Indeed, this suggests the central bank are much more comfortable with its current policy mix than the Fed where we have heard competing views from numerous officials over the past week.
Technically, after the healthy consolidation, EUR/USD looks to be rolling over today having broken down through the recent lows. If the pair closes below here and 1.19, then bears will have their sights set on the cycle lows at 1.18472. Resistance above lies at the consolidation high at 1.19751 ahead of the 100-day and 200-day SMA above and below the key 1.20 mark. Of course, many traders are already eyeing up Friday’s US non-farm employment report for medium-term direction.