EUR/USD is now hovering at its lowest level since November and is likely to face stiffer headwinds as U.S. data continues to support the exceptionalism narrative with a strong ISM services PMI report, following last week’s blockbuster non-farm payrolls.
Consequently, with Federal Reserve Chair Jerome Powell raising the bar for near-term rate cuts, it is now looking like the European Central Bank will be leading the easing cycle.
This is a notable contrast from the start of the year and a factor that is unlikely to bode well for the euro.
As it stands, money markets have priced in a 60% chance of an ECB cut by April 0#ECBWATCH and a 72% chance of a Fed cut by May FEDWATCH.
It is worth bearing in mind that traders are poorly positioned for a weaker euro with the latest CFTC data showing euro net-longs equate to $12bln.
Despite being $8bln lower than the December highs, there is still room for longs to liquidate, therefore, providing a headwind for the Euro.
While there is significantly less event risk this week, the U.S. CPI revisions should be closely watched.
Recall, Fed policymaker Christopher Waller said that the revisions will be a key input into his decision making and as seen last year, the revisions – which showed inflation was firmer than initially reported – contributed to the higher for longer stance.
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