EURUSD: Market’s appetite for pushing through cyclical lows may prove limited - MUFG

Derek Halpenny, European Head of GMR at MUFG, believes that EUR/USD is sitting around key technical support levels between 1.0400 and 1.0500 with a number of key events risks on the immediate horizon.

Key Quotes

“The EUR/USD rate broke below 1.0500 again earlier but there has been no followthrough which is to be expected ahead of the key event today – the speech by Fed Chair Yellen at 18:00 GMT. Yes, this is a key event but surely there can be only one outcome to this – a repeat by Chair Yellen of the message that has been uniform from numerous different Fed speakers – the Fed is set to hike on 15th March. Given we have now had this message conveyed by Governors Brainard and Powell and by Fed Presidents Williams and Kaplan it would be a shock if Yellen was to give any other message. Indeed, if anything you could argue it would undermine her credibility given how isolated a different message would leave her.”

“So we fully expect Chair Yellen to echo the message of her colleagues that implies a rate increase is likely on 15th March. There are other key events next week as well that may hold the dollar back. The ECB meeting next Thursday and the nonfarm payrolls report next Friday. However, at this late stage with a March hike now priced, it would take a very weak jobs report to alter market expectations. With these three events coming over the next week, the market’s appetite for pushing EUR/USD through cyclical lows may prove limited suggesting only a modest slow grind lower for EUR/USD at best.”