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

Head of FX 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.)

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

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.