Short

EUR/USD 1.0500 Will be tested

Updated

EUR/USD erased meager overnight gains and turned lower Friday, with a growing list of bearish influences increasing the probability support near 1.0500 will come into play.

The potential for the ECB to cut ahead of and more than the Fed increased the dollar's yield advantage over the euro.
German-U.S.
2-year spreads widened and neared the base of the range they've been in since September.

Should geopolitical tensions flare-up and spreads break the range base, EUR/USD's slide could intensify as investors opt for the safety of the U.S.

EUR/USD shorts could then have the confidence to push the pair towards 1.0450/1.0500.

- EUR/USD drops below 2024 low at 1.0695 reaching 1.0682 EBS
- Break will spur tech related selling and
- Break of 1.0650 - 76.4% 2023-24 rise would target 1.0517
- Drop below 1.0596 would target 1.0448 - base ahead Sep-Dec surge
- Gold surged to a record high shortly ahead USD's rise
- Uncertainty about US rate path will support USD

Note

Note

Speculators doubled bets on EUR/USD rising between Apr 2-9

EUR/USD rallied 1.0725-1.0885 EBS in that period

EUR/USD has sunk 1.0885-1.0653 since spurring losses for those long

Drop below 1.0596 would target 1.0448 - base ahead Sep-Dec surge

Sell-off is currently stretched well below base 20-day BBs at 1.0706

Heightened risk aversion stemming Mid-East to

Note

1.05917 will be achieved within the next 48 hours

Be Patient.

Note

FX option implied volatility reflects FX realised volatility risk premium

It's surged from 2+year lows in mid March to highs since Jan
EUR/USD 1-month implied vol now 2.0 above mid March lows - trades 6.9

Even 1-year expiry has rallied to 6.9 vs its own 2+year lows around 6.1

Implied vol premium for EUR puts over calls has also surged

1-month risk reversals highest downside vs upside vol premium in a year

1.0600 contains , break risks deeper declines

Note

Key Points:

Alignment on Initial Rate Cuts: Both ECB policymakers and financial markets anticipate the commencement of a rate-cutting cycle by the ECB in June. Any reaffirmations of this timeline in upcoming ECB communications are unlikely to significantly impact the EUR, as this expectation is already priced in.

Focus on Future Rate Trajectory: The crucial factor for the EUR will be any new guidance on the trajectory of future rate cuts. ECB Governing Council member Simkus recently mentioned the possibility of a follow-up rate cut in July and suggested a greater than 50% likelihood of more than three rate cuts in 2024. These comments have introduced new variables for market consideration.

ECB President Lagarde's Upcoming Speech: ECB President Christine Lagarde is scheduled to speak on Wednesday, and her remarks will be closely watched for any indications that might suggest a deviation from or confirmation of the anticipated rate path. With the market pricing in a roughly 50% chance of a July rate cut, her comments could be a significant catalyst for EUR movement.

Market Sensitivity to Rate Expectations: The EUR remains sensitive to shifts in expectations regarding the ECB's rate-cutting strategy. Any signals that suggest an acceleration or deepening of rate cuts beyond the initial June reduction could provoke volatility in the currency's valuation.

Conclusion:

The EUR's near-term trajectory is poised to be heavily influenced by upcoming ECB communications. As market participants look for clarity on the pace and depth of future rate cuts, statements from ECB officials, especially President Christine Lagarde, will be critical in shaping currency strategies. Investors and traders should stay alert to these developments, as they could present opportunities or risks in currency markets.

Note

Loss consolidation with a degree of upside risk
This week's doji candles suggest bears are lacking conviction
Indecision in the low 1.06s could trigger a larger adjustment higher
Daily RSI is bumping along the 30 line and negative momentum is fading
A minimum correction of the 1.0885-1.0602 drop is at 1.0669
A return to the Tues 1.0654 high could also ease the over sold pressure

Note

Based on fundamentals

EUR/USD narrowly recorded a bullish engulfing candle Wed
Early Thurs gains adding some confirmation but today's close now key
A minimum correction level met at 1.0669-EBS
The next Fibonacci retracement levels re at 1.0710 and 1.0744
Fourteen day momentum still negative and RSI has lifted from o/s levels
We offer by 1.0725 but might reevaluate our strategy later today
For more click on FXBUZ

bruno_ovelheiro

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