Monster Bounce on EUR/USD on 50 BPS Rate Hike Scenario from the ECB
The GDAP for Q1 was revised up in the Eurozone, while the ECB might hike rates by 50bps in July which is helping Euro right now
EUR/USD has been beaten down for about two months, but today we are seeing a really strong bounce, as risk sentiment improves and the ECB prepares for rate hikes in July. From a technical perspective, the pair is also seeing a modest bounce-off support around 1.0400 if you go by the weekly chart but on smaller timeframes, this is a huge move. With broader risk sentiment also faring better today, the dollar is seeing a bit of a pullback against other major currencies.
But EUR/USD did get a jolt from 1.0480 to 1.0520 on the back of Knot’s remarks earlier. At this stage, a July rate hike is all but a given but he floated the idea of a potential 50 bps rate hike and that is getting markets a tad bit excited.
On the other hand, risk sentiment is certainly picking up on the session with S&P 500 futures now up 65 points to 4,070, or up 1.6% on the day. Nasdaq futures are up 2.1% while Dow futures are also seen up 1.2%. The positive mood is also helping to see European indices rally with gains of around 1.3% to 1.8% mostly across the board.
As much as there is room for optimism, this is still perhaps just the market letting off some steam after the unrelenting pressure since April. The dollar is also seeing a bit of a pullback as risk optimism improves on the session. I’m not seeing any major headlines that is leading to the surge in risk appetite but after all the deleveraging talk in the past month, it’s looking like risk flows are returning back to being a key driver – at least for now.
- Q1 GDP QoQ second estimate +0.3% vs +0.2% prelim
- GDP YoY +5.1% vs +5.0% prelim
EUR/USD Live Chart
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