EURO FUNDAMENTAL BACKDROP
The euro is trading cautiously this morning which is to be expected as markets prepare for the upcoming US CPI report (see economic calendar below). There has been little follow through from the recent SVB and Signature collapse today but the Federal Reserve and European Central Bank (ECB)’s dovish repricing has now shifted so significantly that a inflation miss could really drive this narrative to fruition and possibly see a Fed rate pause or cut in the March meeting. Generally, the Fed stops hiking rates when conditions are poor, exposing high beta FX currencies to downside risk while the US dollar’s safe-haven allure comes into play. In short, if this is the Fed’s last interest rate hike, history suggests being short the USD could be an unwise decision.
EUR/USD ECONOMIC CALENDAR
As mentioned above, the ECB rate probabilities (refer to table below) have been significantly repriced as well which has limited EUR upside and now challenges the almost certain 50bps rate hike that was assured by ECB President Christine Lagarde.
ECB INTEREST RATE PROBABILITIES
The trading day will close out with the Fed’s Bowman’s address and it will be interesting to get the perspective from a Fed official who may reflect the overall thoughts of the Fed itself.
EUR/USD DAILY CHART
Daily EUR/USD price action has the dollar stronger this morning against most G10 currencies now hovering around the 1.0700 psychological resistance level/50-day MA (yellow). There is unlikely to be any significant movement between now and the US CPI release with no real directional bias evident. The Relative Strength Index (RSI) indicates no momentum preference to neither bulls nor bears thus highlighting the importance of US inflation and markets current cautious approach.
IG CLIENT SENTIMENT DATA: BEARISH
IGCS shows retail traders are currently SHORT on EUR/USD, with 53% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short-term we arrive at short-term downside disposition.