EUR/USD Technical Risks & More with John Kicklighter and Pete Mulmat

Every month, DailyFX Chief Strategist and IG US CEO Pete Mulmat sit down to discuss their favorite forex pairs. This week, John and Pete discussed USD sentiment, risks in EUR/USD, and commodity currencies like NZD.

USD Overshooting

Pete started by sharing his thoughts on the USD. When anticipating interest rate hikes, Pete explained that “traditionally, markets overshoot, then they undershoot, and I think we’re in that overshoot now”. Pete went on to mention. “I think four 50-point hikes built into the pricing is an awful lot”

CME Fed Watch Tool

EUR/USD Technical and Fundamental Weight

On EUR/USD, all eyes are on tomorrow’s ECB accountment. John’s fundamental analysis found that the ECB is substantially more dovish relative to the fed’s 216 basis-point hawkish rhetoric. This 150-basis point difference in favor of dollar has been the fundamental backdrop behind EUR/USD’s multi-month slide to the downside.

EUR/USD Price Chart

Now, in April 2022, with EUR/USD sitting just above the 1.0800 level, John can’t help but wonder if “we are too far”.

Right now, the ECB can pull the rug from traders. While a break below 1.0800 might seem like a solid trend, tomorrow’s ECB conference has serious potential to shift the fundamental tone surrounding EUR/USD’s consistent sell-off.

While John cites himself as a risk-on trader, he encouraged traders to show some caution while trading EUR/USD until the ECB’s sentiment is more clear.

In addition to the risks in tomorrow’s ECB announcement, John and Pete also touched on trading the New Zealand dollar amidst the RBNZ’s extremely hawkish interest rate hikes.

Hawks in New Zealand

Yesterday, The Reserve Bank of New Zealandhiked interest rates to 1.50% off of an expected 0.50%. This has placed the New Zealand dollar as the subject of one of the most hawkish central banks outlays amongst major forex pairs.

While NZD/USD was mixed after the announcement, John shed light on how AUD/NZD may be a solid indicator of NZD’s interest rate expectations, given the similarities between the two economies.