EUR/USD did some serious damage to the long-term charts last week and broke out of a bear trend which had roughly contained price action since 2008. 1.11/1.12 is now going to be important support, and presumably the buy-side (including both the private and public sectors) will now be EUR/USD buyers on dips as they wait for the tariff shock to materialise in hard US data, ING’s FX analyst Chris Turner notes.
EUR/USD breaks long-term bear trend
"While it is tempting to embrace a 'sell America' mentality, the suggestion that China has been selling US Treasuries remains speculative. Fund flow data to last Wednesday showed that there were still net positive flows into the long end of the US Treasury market, even if the vast majority of flows went into money market funds and the short-end of the Treasury curve. Expect the March Treasury International Capital (TIC) data, released 16 May, to be scrutinised for Chinese selling of Treasuries."
"This week, EUR/USD will probably be trapped between a medium-term trend change on a US slowdown and a more dovish European Central Bank. The ECB probably won't like the reality that the trade-weighted euro is surging to multi-decade highs, yet it will also acknowledge its benefit and safe haven properties of the second most liquid currency in the world. This will have some longer-term benefits for eurozone borrowing costs and has already seen German 10-year Bunds outperform Treasuries by 50bp over the last 10 days."
"EUR/USD is trading way over any levels that short-term rate differentials would suggest. We don't want to stand in the way of a move to 1.15, but prefer a 1.12-1.15 range near term rather than an immediate push to 1.18/20."
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