EUR Turns Higher Amidst Market Turmoil
It’s becoming a redundant sentence, I know, but what a week. FX volatility is back up at levels not seen since the outbreak of COVID and this has made for plenty of opportunity. We’ve seen many wild swings this week with the boomerang action in GBP clearly the winner in terms of shock factor. However, chatting with traders ahead of the weekend, it seems the move that has captured traders’ attention in a more meaningful way is the rally in EUR. The single currency has made broad based gains this week and is starting to look like a fuller move higher might be on the cards in the near-term. Looking at EURUSD in particular, we’ve seen a more than 3% move higher this week, bringing price back up firmly off the year’s lows. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused The Move?
GBP Volatility Favours EUR
Part of the move higher in EUR this week has been the weakness we’ve seen in its major trading partners. Both USD and GBP have been sharply lower, allowing EUR plenty of room to recover. The UK government’s mini-budget has seemingly gone down like a lead balloon, sending GBP sinking to its lowest levels since the 80s. This seismic shift in market pricing has seen funds diverted into EUR this week as traders look to avoid the UK meltdown many are now forecasting in the coming months.
Hawkish ECB Forecasts
However, the story has not just been a by-product of action elsewhere. EUR is also benefiting from a more hawkish ECB outlook. Goldman Sachs upgraded their ECB forecasts this week, now pegging tow further .75% hikes over the coming months as the ECB battles to tame soaring inflation. The change in outlook is being digested by traders as markets adjust to the sharp shift in EU rates this year which has seen the ECB reversing the negative rates put in place in response to the GFC.
Technical Views
EURUSD
The rally off the bear channel lows has seen EURUSD reversing sharply higher. Price has broken above tow key levels and is now fast approaching a retest of the broken .9885 level. This is a major level for EURUSD, with the bear channel top just above. A break here will be firmly bullish, putting the longer run focus on a move up to the 1.0364 level thereafter.