EURUSD on Watch

The latest data out of the eurozone today continues to paint a better picture for the single customs union. The unemployment rate was seen holding at record lows of 6.2% for a third straight month in February. This comes on the back of data yesterday showing the economic sentiment in the eurozone rose to five-month highs last month. Additionally, the eurozone flash CPI estimate showed that inflation cooled on both core and headline readings. Despite these readings, the market is still widely expecting the ECB to cut rates by a further .25% when it meets on Thursday though EURUSD won’t necessarily fall as a result.

Scenarios & Trading Implications

Instead, traders will be focusing on future rates guidance and the latest outlook from the bank. Given the current backdrop, we could see a more neutral message from Lagarde and co, noting that conditions for a recovery generally remain in place, acknowledging some downside risks from trade tariff threats. In this scenario, EUR should remain supported provided that USD weakness continues through the week. If the bank is seen taking a slightly more dovish skew, keeping the door to further easing open, this could curtail the current EURUSD rally. However, if the bank goes the other way, noting that the growth outlook is now more balanced, downplaying trade tariff threats and signals a pause in easing, EURUSD has room to break firmly higher, particularly if USD remains weak.

Technical Views

EURUSD

For now, risks appear tilted towards fresh upside with a break above 1.0515 seen opening the way for a move up to 1.0724 next. From there, while price holds above 1.0515, a retest of the broken bull trend line is the broader target. 1.0360 remains key near-term support to watch.