The G10 currencies advanced on Monday as FX traders digest the US labor market numbers and looking forward to the upcoming ECB meeting and US inflation reading on Thursday. So, we have a Big Thursday ahead and more volatile expected than last week.
Expectations were like fine pottery. The harder you held them, the more likely they were to crack.”― Brandon Sanderson, The Way of Kings.
Our subject currency enjoyed two back-to-back gains after weaker US jobs data, but the US dollar is stable within the range. Last Friday, US jobs data printed lower than expected; thus, FX traders tend to bet that the Fed will maintain its easy monetary policies for longer.
Well, looking at the NFP numbers printed below expectations, but the overall 559k increase is good to economists. The market was expected more after the ADP report. Post the ADP data, the dollar was outperformed, but post-NFP dollar positions were squared.
2+1:
ECB on Thursday and Fed on next week are the events keeping traders’ sidelines. On top of these two events, US CPI this week is the only data point we are watching.
Dollar range: 88-91.60
Our eyeball remains on the dollar movement, as the soft NFP employment data failed to lower the dollar from its current range. We still believe either we will make a double bottom between 89-88 or prepare another leg down to touch the Monthly 200MA at 86.80. In both cases, the current downtrend is limited to the dollar.
You should take longs on USDJPY and USDCHF for a better risk-reward if you are a dollar bull. Besides, EUR bulls better keep an eye on EURCHF ahead of the ECB meeting. The flag pattern on the daily chart would make a bigger sound in the coming days but needs more patience. For quick moves, EURCAD sits in a better position. BOC and ECB meetings this week could pop the price higher to 1.4950+ if 1.4820 takes off.
Positioning:
Ahead of this week’s US CPI and ECB meeting, active traders always keep an eye on FX positioning data. Looking beyond this week’s data points, the FX market holds stretched USD short positions into the 16 June FOMC meeting.
The week ahead: ECB meeting + US CPI= High volatility
Again, the FX market direction shits to the inflation data on Thursday. We expect the inflation is heating up, led by the soft US employment data. Looking at the ECB meeting, we still hope that ECB will lower PEPP from the current 80bn per month to at least 70bn in the coming quarter. Our key focus remains on the rating outlook, economic projections, and taper talk. ECB doesn’t want stronger EUR, so taper talk in the June meeting will be avoided.
Remembering the latest OECD projections, they see that Global economic growth is now expected to be 5.8% this year, a sharp upwards revision from the December 2020 Economic Outlook projection of 4.2% for 2021. It also sees that the euro area is projected to grow by 4.3%in 2021 and 4.4% in 2022. At the same time, the United States real GDP is projected to grow by 6.9% in 2021 and 3.6% in 2022.
Keeping this in mind, we expect the ECB will raise its growth forecast in 2021 and 2022. Here is the gist of analysts’ predictions at the June ECB meeting.
According to Danske Bank, ECB is expected to raise its growth projections by 0.3pp for this year and next year.
TECHNICAL VIEW
EURUSD has remained fairly range-bound for the past weeks, and it lacks a catalyst to breakout higher. This weeks’ US CPI and next week’s FOMC meeting could be the driving factor to the common currency. We will be worries if the EURUSD closes above 1.2350 by the end of next week. In this case, 1.1700 and 1.1500 are the following lower targets to watch out for.
Flipside further weakness in the dollar could propel the EUR higher towards 1.2350 and 1.2450. Looking at EUR crosses, EURCAD and EURCHF offer a better risk-reward ratio.
Fairly range-bound, missing the WOW factor to push higher