FX Update: EUR squeeze is on as ECB talks 50-bp hikes.

FX Update: EUR squeeze is on as ECB talks 50-bp hikes.

Forex 4 minutes to read
John J. Hardy

Global Head of Macro Strategy

Summary:  A back-up in risk appetite and an ECB member wanting to put 50-basis point hikes on the table have the EURUSD teasing above 1.0500 today and the USD on its back foot across the board, with the JPY weaker still as the Japanese currency has been on a roller coaster since last week. Sterling got a boost from very strong data making a bit of a mockery of BoE Governor Bailey’s hand wringing on the coming recession.


FX Trading focus: Squeeze on USD longs, ECB talks 50’s, Strong UK data

EURUSD was rising in general sympathy with a squeeze on USD longs as risk sentiment improved again overnight on hopes that China is softening its stance on tech companies. But the EUR jumped aggressively later in the session today after ECB governing council member Klaas Knot said that fifty basis point hikes should be on the table if conditions warrant. This took ECB rate tightening anticipation for this year over 10 basis points higher, with a positive 50 basis point policy rate almost fully priced now (47 bps of this writing). This is the second day in a row of hawkish talk from the ECB after Bank of France head Villeroy warned on the weak euro yesterday. That rate through the December ECB meeting has jumped some 20 basis points over the last two sessions and is 14 basis points above the prior peak from earlier this month of 33 bps. Premature to call a EURUSD bottom, as we have simultaneously seen a robust bounce off equity market lows of late last week that is likely at least as decisive factor in pricing USD pairs recently. More thoughts in the EURUSD commentary below. Tough to see the ECB moving 50 basis points unless the EURUSD is challenging parity suddenly or unless the bank pre-warned on such a move and positioned it as a quick front-running of ending NIRP rather than setting a precedent for further hikes of that size.

For the latest on the status of the USD rally, watching the US Apr. Retail Sales today and Fed Chair Powell out speaking later today in a WSJ-interview (as US gasoline prices hit a record high and the Fed has recently seemed to want to step back from driving the anticipated pace of tightening higher.)

Chart: EURUSD
EURUSD retook the important 1.0500 area intraday today, a level that was a clear sticking point on the way down. Watching the close today for whether the move sticks and if it does, it could point to a follow through into the next important resistance level at 1.0642, which is also near the 2020 low for the pair. A more profound reversal will take a significant further pull higher, well above 1.0800, so it is too early to discuss more than a tactical reversal. Also watching US data later today and importantly, ECB President Lagarde out speaking much later today.

Source: Saxo Group

Bank of England Governor Bailey broke out the word “apocalyptic” to describe the risks from food prices for parts of the world and generally fretted the UK growth outlook in testimony before a parliamentary committee yesterday, at the same time bemoaning the inability of the BoE to do anything about supply chain constraints that suggest a stagflationary outlook. The hand-wringing role seems to suit Mr. Bailey as it allows him to deflect blame for any of what is transpiring. But it doesn’t help sterling shorts when the UK posts strong economic data points like those in today’s labor market data, including a -56.9k drop in Jobless Claims in April, with a massive downward revision to the March data (from -46.9k to -81.6k). The March 3-month rolling employment change was +83k, the strongest in 5 months, while the April PAYE payrolled employees data jumped to +121k vs. +51k expected and was thus the strongest since July of last year. UK 2-year rates jumped about 7 basis points on the data. Yes, employment data is lagging, but it still impacts the market.

Watch out for tonight’s Australia wage data – this could set RBA expectations on edge in either direction on a particularly large surprise. The RBA minutes showed the RBA considered three options for hiking rates – the 15 basis points option (to get rate up to round 0.25%), the actual 25 basis point hike which was decided, and a 40-basis point option. The last of these surprised the market and here we have AUDUSD backed up well above 0.7000 as of this writing. It looks like the pair can afford a squeeze into the 0.7050-0.7100 zone without pointing to a bullish reversal, but if the price action pulls higher still, it begins to soften the downtrend.

Table: FX Board of G10 and CNH trend evolution and strength.
A big hot momentum change in GBP of late and in the euro today, though the trend measurements take more than a day to begin turning. Elsewhere, the USD (and JPY) absorbing most of the negative pressure of last couple of sessions.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
EURUSD has reversed back above key first resistance at 1.0500 as discussed above, now watching last gasp local support in a pair like USDCAD (a bit of a squishy zone, but arguably a close below 1.2800 starts to look pretty threatening for USD bulls there), while the AUDUSD resistance zone is noted above.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1230 – US Apr. Retail Sales
  • 1315 – US Fed’s Harker (non-voter) to speak
  • 1315 – US Apr. Industrial Production and Capacity Utilization
  • 1400 – US May NAHB Housing Market Index
  • 1700 – ECB President Lagarde to speak
  • 1800 – US Fed Chair Powell Interview at event
  • 1830 – US Fed’s Mester (voter) to speak
  • 2350 – Japan Q1 GDP estimate
  • 0130 – Australia Q1 Wage Price Index

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.