The tide has certainly turned in the EUR/USD...

Published date: 03/06/2018

Above is the daily chart and below is the weekly, currently they are painting two different pictures. From a technical perspective, the daily is looking like a trend following the pattern and a close on Monday below the previous candle low would confirm the bearish sentiment. Tuesday ECB president Draghi speaks at the 20th anniversary of the central bank, there may not be any mention of monetary policy but with this guy, you never know and on Thursday the latest Eurozone GDP reading. Inflation hit 1.9% year on year and now it's the turn of the growth rate to see if the momentum could support normalisation of policy. 

The weekly chart is indicating exhaustion, this relentless upside move in USD looks to be losing some momentum even after a great payroll report on Friday. the Large doji candle formation indicates the pair wants to hold above the 1.16 handle that was tested last November. The weekly candle high of 1.1730 is a significant price point in the coming week and price action around that level should be watched carefully. 

The tide has certainly turned in the EUR in the last few months, and its fortunes are closely aligned to the performance of the USD, and USD index given its heavy weighting based on trade. EU wide growth has slowed in pace as some would have anticipated, and this is something the ECB was happy to point out in their last meeting.  The market also ignored the warnings of excessive strength, and in such a short period of time, and after repeated but failed attempts, the EUR came off hard and this was down the sizable longs in the market which feel have more room to adjust. 

However, given the relentless move south, we have seen inflation picking up again, and given asset price stability is the ECB's primary mandate, concerns will start to surface on how far an overshoot will be tolerated.  CPI for Apr shot up from 1.3% to 1.9% with higher energy prices also contributing, but on the exchange rate, we traded down to a low of 1.2075 at the end of Apr, shedding another 5 cents since.  ECB pricing for the next rate hike is unlikely to firm up from current expectations of mid-2019, but a significant overshoot above 2.0% will start to unnerve some of the recent dovish plays, which have been exacerbated by the political crisis in Italy.  



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