FX trader - It's EURs time to shine

One focal point on the session was comments from ECB member Holzmann – the Austrian central bank gov – who becomes a voter in May. A known hawk, he talked about a desire to see four 50bp hikes in a row, which could see the market price a terminal ECB rate of 4.5%. As a result, we’ve seen good selling in the 2-year part of the German bond curve and ECB rates pricing sits at 3.96% for year-end.

A 50bp hike from the ECB next week (16 March) seems like a done deal, but for now, rate differentials have moved in the EURs favour, while EU Nat gas prices falling a further 6% to E42 MWh won’t have hurt confidence to the region either. EURUSD has traded to 1.0964, before finding sellers into the 1 Feb high – the bulls will want this taken out, but price is above the 5-day EMA and price is printing higher lows (on the daily).

EURUSD daily

A closing break of 1.0692 sets EURUSD up for a big test of the 38.2 fibo (of the 1.1032 to 1.0533) and 50-day MA at 1.0724. Whether we get there in the short-term falls on how the market digests Jay Powell’s speech in the session ahead.

With 31bp of hikes priced into the US rates market, the door is open to a 50bp hike at the 22 March FOMC meeting - a premium is therefore baked in that we see a hot US NFP and CPI print, but given the barrier is still high for the bank to want to step up to 50bp, this pricing should limit USD buying to an extent.

On the day it’s the AUD which has seen the big percentage change, following weakness in the CNH (offshore Chinese yuan). The move lower in AUD is not reflective of traders positioning for today’s RBA meeting (14:30 AEDT) but maintaining its China proxy status. EURAUD is starting to look overbought, but on the day we’ve seen solid range expansion and the margin FX cross eyes big levels in the form of the December highs of 1.5920 – one for the scalpers to have on the radar, and as well as those who see this being close to a top of a range play.

EURJPY is another that the macro traders are long as a central bank divergence trade – on the day we’ve seen a bullish outside day reversal, so buy-stop orders above 145.60 will be eyed up for a momentum play. The BoJ meeting this week shouldn’t worry JPY shorts too intently and while it's Kuroda’s last meeting at the helm, it seems very unlikely he’ll go out with a bang.

Some big event risks ahead – the EUR is finding some love, but can it continue?