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Jul 06 - 01:55 PM

EUR/USD - COMMENT-EUR/USD Investors Likely Expect A Less Aggressive ECB

By Christopher Romano  —  Jul 06 - 10:40 AM

EUR/USD fell to a fresh 20-year low Wednesday and the slide may extend below parity as investors expect a less hawkish ECB as inflation's effects may be waning.

Concerns that global economic growth, which the euro zone is highly dependent upon, could be slowing has helped drive interest rates lower.

German 2-year yields DE2YT=RR struck a 1-1/2-month low.
The drop helped increase the dollar's yield advantage as German-U.S.
spreads US2DE2=RR hit their widest since April, threatening April's monthly wide.

Euribor futures FEIZ3 prices rallied, pushing implied rates lower, sharply off the June 14 low and are close to breaking key daily highs from May as investors reduce expectations for the terminal ECB rate.

Falling euro zone inflation expectations EUIL5YF5Y=RR reinforce views the ECB may be less aggressive with hikes.

Investors' expectations for the terminal Fed rate have also dropped but at a slower pace, helping pressure EUR/USD lower.

EUR/USD has been unable to mount any rally since breaking below the key 1.0335/50 zone and falling daily, monthly RSIs are oversold but not diverging, implying downside momentum remains.

A test of parity seems likely and a drop toward support near 0.9600 could be possible.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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