In FX, investors appear to be catching their breath after a busy week, which included an expected 25 basis point rate cut on Thursday from the European Central Bank (ECB). Volatility picked up yesterday with some sharp moves which saw the US dollar on the back foot while the euro rallied.
This came as ECB President Lagarde said that the central bank was coming to the end of its current programme of monetary easing. Her comments led to a sharp rally in the euro, as investors considered the effects of a lengthy pause in EU monetary policy as they continue to anticipate further rate cuts from the US Federal Reserve.
The US dollar has also taken the brunt of investor disappointment over the disruption of global trade thanks to the Trump administration’s ongoing tariff debacle. The US bond market has also come under pressure as US debt is viewed as a riskier proposition due to the trade war and Moody’s downgrade last month.
Yesterday’s Forex moves have effectively reversed this morning. The US dollar recovered overnight, while the euro has pulled back. Traders seem happy to sit on their hands for now ahead of today’s US Non-Farm Payroll release.
Two months ago, around the time that Mr Trump revealed his reciprocal tariffs, the EURUSD managed to soar above prior resistance around 1.1200/1.1250. It went on to break above 1.1500 to hit its highest level since November 2021. Since then it has pulled back. And as things stand, the pair has been stick in an orbit around 1.1400.
Source: TN Trader
Will the euro’s appeal increase from here? Or has it already peaked? Much depends on how Trump’s trade war is resolved. But it feels as if FX players are not as ready as equity investors to accept TACO (Trump Always Chickens Out).
