Yesterday, I went through the challenges for the ECB to do much to aid the economy with monetary policy, which can’t move the needle at these levels of accommodation. The EU will remain the last major economic bloc to accomplish the transition to fiscal dominance because of the unstable multiple sovereign/single currency and central bank foundations. Still, the ECB could do enough to keep the euro weak if it panics and signals a desire to keep long EU yields capped today or in the near futures. This likely only serves as a notable catalyst for downside pressure on the euro, if US and other yields resume their recent rise to new highs for the cycle. Regardless, after an “orderly” US treasury auction yesterday and yields tamed for the moment, EURUSD is consolidating back into the key zone of resistance that must cap if the bears are to rule the day – the 1.1950-1.2000 shown in the chart below. With yields at the longer end of the curve in Europe also quite orderly, the ECB may be tempted to skip signaling any intent to do much higher. Lagarde and company would do well to rattle the EU commission’s and member governments’ cages on the need to expand fiscal stimulus.
Graphic: FX Board of G10 trends and momentum
USD momentum flagging badly here (biggest two-day negative shift in momentum), and gold momentum reversing as well as we await next week’s FOMC meeting, likely the chief arbiter of near term USD direction, together with US Treasury yields, with EURUSD already in a pivotal technical area today as noted below. Note as well the ongoing weakness in CHF (slowing downtrend, however, ) and JPY (not slowing) as well as NOK showing still positive momentum and the strongest rally reading.