EURUSD Weakness Likely to Continue
EURUSD News and Talking Points
- US Short-term interest rates will support the greenback
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EURUSD Expected to Slip Lower as US Interest Rates Bite
The EURUSD pair is coming under pressure as US short-term interest rates continue to move higher ahead of further US rate hikes. The closely watched US 2-year is currently quoted with a yield of 2.428%, up from 1.18% one year ago. In contrast the Euro-Zone short-term benchmark, The German 2-year, currently trades at -0.55%, a near 300 basis point differential with its US counterpart, highlighting the difference in monetary policy between the two areas.
While the US are seemingly comfortable raising rates to keep a lid on inflation, in the Euro-Zone inflation remains well below the central bank’s target of around 2% and may struggle to push higher in the short-term The latest annual EZ inflation print of 1.3% missed expectations and a prior month’s reading of 1.4% while recent German economic data has also softened, adding to the ECB’s worries. The ECB’s bond buying program is scheduled to finish at the end of September but this looks highly unlikely with the market expecting the QE program to be extended in some form until at least the end of 2018, or beyond. If ECB rhetoric is applied then this leaves little room for rates in the single-bloc to be increased until at least mid-2019.
The daily chart shows EURUSD trading in a short-term down trend with the upside currently at 1.24160, while the lower part of the channel is at 1.21795, a level last seen on March 1. Initial support for the pair is at 1.23059, the 23.6% retracement of the November 2017 – January 2018 rally, ahead of the April 6 low of 1.22147.
EURUSD Daily Price Chart (May 2017 – April 19, 2018)
Retail traders remain short of EURUSD according to the latest IG Client Positioning Data but recent changes in client holdings turn our contrarian bearish view to a more mixed outlook. The data is updated daily and is free is download.
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--- Written by Nick Cawley, Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.