By Justin McQueen EUR/USD continues to grind in a tight range, with the 200-day moving average doing its job on the downside, a level that has been tested and held on multiple occasions now, which gives it credibility as near-term support. Topside remains capped though, and there is little appetite to chase this higher with both the Fed and ECB on the docket. In turn, with dual central bank risk ahead this is keeping a lid on any directional conviction.

Brent crude pushing through $110 is a headwind worth flagging. The textbook read is EUR-negative via the terms of trade channel, but the pair has absorbed it well. Equities staying firm and yield spreads nudging modestly in EUR's favour have provided enough to offset the oil drag. Though the resilience appears notable, it is far from a platform to build from. Instead, this is more of a function of nothing going materially wrong at present. On the ECB, a June hike is near-fully priced, and the latest consumer inflation expectations – three-year metric jumping to 3.0% from 2.5% – gives ECB President Christine Lagarde the data cover to maintain a tightening bias. However, the market has already done the heavy lifting on pricing, so the bar to deliver a hawkish surprise is now materially higher. If Lagarde simply ratifies what is priced and does not lean in with explicit forward guidance on the pace of tightening, that risks an EUR pullback. In turn, the risk asymmetry for the meeting skews marginally to the downside for EUR.

For now, EUR is in a holding pattern. Price action stays listless and two-way until we get clarity from the central banks.
EURUSD daily chart today


ECB pricing at each meeting


Justin McQueen is a Reuters market analyst. (The views expressed are his own) ((Email: ))