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Euro Under Pressure

The Euro has come under fresh selling pressure today on the back of comments from ECB’s Villeroy. Speaking this morning, Villeroy said that while it was too early to declare victory on inflation, rates in the eurozone should not move higher than they currently are. He went on to say that he feels the ECB’s next move should be a rate cut this year, though didn’t give a more specific timing signal than that.
 

Dovish ECB Expectations

The market is currently pricing in an ECB rate cut by April with pricing for an earlier cut in March currently sitting around 50%. With the market primed towards anticipating ECB easing, any sense that the ECB might act sooner than April is likely to weigh on EUR here. Today’s reaction to Villeroy’s comments serves as evidence of this given that we recently heard from ECB’s Nagel and Holmann warning that rate cuts are not guaranteed this year, comments which failed to spur a rally in EUR. As such, traders should monitor incoming data and commentary (ECB’s Lagarde speaks tomorrow), remaining sensitive to dovish signals that can send the EUR lower near-term.
 

Technical Views

EURUSD

(Click on image to enlarge)

The rally in EURUSD has stalled for now into a test of the 1.1126 level and the retest of the broken bull trend line. Price has since reversed lower and is now testing below the 1.0937 level. With momentum studies bearish, the focus is on a further push lower and a test of the 1.0785 level next. 

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