EUR/USD Continues To Test Support, ECB Nerves In Focus
Frankfurt (Mar 8) Overall yield spreads will continue to support the dollar and tend to keep EUR/USD under pressure, but there will be some reluctance in holding aggressive short Euro positions ahead of Thursday’s ECB policy meeting.
The dollar has continued to gain support from expectations of a Federal Reserve move to raise interest rates next week. Although a rate hike is priced in, there has been a reluctance to sell the US currency ahead of the event given the possibility of a hawkish statement.
US 10-year yields have increased to near 2.55% on Wednesday and 2-year yields have increased to just above 1.34% and the highest level for over six years which has provided important dollar support. EUR/USD has continued to drift weaker with a further test of the 1.0550 support area with narrow ranges persisting.
There have not been any major Euro-zone economic data releases during Wednesday with German industrial production data broadly in line with expectations.
The latest Opinionsway poll for the French Presidential election recorded little overall change with centrist candidate Macron still seen as defeating National Front leader Le Pen in a theoretical second-round run-off, although the latest margin appears to have widened slightly which may provide some slight Euro support.
The latest German 5-year bond auction was technically uncovered which helped push bund yields higher and there has been a slight narrowing of the US-German 10-year yield spreads which offered some Euro protection.
The dollar will look for additional support if there is a stronger than expected ADP employment report, especially as a strong ADP report last month did precede a big non-farm payrolls increase, although the overall impact should be limited.
Thursday’s ECB policy meeting will be an important focus and there will be expectations of a generally dovish stance from President Draghi. Markets will, however, be wary over any slight shift in forward guidance and there is the potential for a covering of short positions into the release which would provide some Euro support.
Source: EconomicCalendar
