Stay short EUR/USD and EUR/JPY - Deutsche Bank
EUR/USD extends correction above 1.1150, NFP in focus
The EUR/USD pair extends its recovering mode into early Europe, reversing a part of ECB-led slide witnessed yesterday, while the main risk event for today remains the US employment data due later in the NY session.
EUR/USD tests hourly 200-SMA at 1.1159
Currently, EUR/USD trades modestly flat at 1.1155, extending recovery from 1.1142, session lows. The main currency pair attempts a tepid-bounce this Friday as dust settles over the ECB aftermath, while markets resort to cover their EUR shorts as we head towards the highly influential US NFP data, which is likely to trigger massive volatility across the financial markets.
On Thursday, the European Central Bank (ECB) left monetary policy unchanged as the main refinancing rate stayed at 0.0%, while the deposit rate was kept at -0.4%. While the ECB Chief noted during his presser, consumer price growth would remain low or negative for several months ahead. Draghi’s comments were the main catalysts behind the sell-off in EUR/USD from above 1.12 handle.
Data-wise, the EUR calendar holds a series of services PMI reports from the Euro area, followed by Eurozone retail sales. While the US jobs report is expected to emerge the main market moving event this Friday.
EUR/USD Technical Levels
In terms of technicals, the pair finds the immediate resistance 1.1210 (20 & 100-DMA). A break beyond the last, doors will open for a test of 1.1250 (round number) On the flip side, the immediate support is placed at 1.1126/24 (May 25 Low/ Daily S1) below which at 1.1099 (200-DMA) could be tested.
GBP/USD losing the grip near 1.4440
The sterling is following the rest of its risk-associated peers on Friday, sending GBP/USD to the lower end of the bound near 1.4440.
GBP/USD amidst ‘Brexit’ and USD
The resurgence of the buying interest around the greenback has motivated spot to retrace from tops beyond the 1.4600 handle recorded on Tuesday, giving away around two big figures so far.
Lower yields in UK Gilts and the re-emergence of jitters around a probable ‘Brexit’ scenario following the EU-UK Referendum at the end of the month have been weighing on sentiment as of late, spooking traders and triggering the ongoing leg lower.
GBP/USD levels to consider
As of writing the pair is retreating 0.05% at 1.4451 and a break below 1.4425 (55-day sma) would aim for1.4352 (low Jun.6) and then 1.4330 (low May 16). On the other hand, the next resistance aligns at 1.4645 (spike Jun.7) followed by 1.4715 (200-day sma) and finally 1.4744 (high May 6).
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Recent developments in EUR/USD point to a renewed deterioration in fundamentals across our two most important guiding frameworks - flows and real rates.
On the flow side, the basic balance - the sum of the current account, FDI and portfolio flows - remained negative but stable throughout last year as large portfolio outflows offset the current account. Flows have recently taken a turn for the worse however, this time driven by foreign direct investment (FDI) outflows. European appetite for foreign companies is picking up, and a similar message is given by our more forward-looking cross-border M&A monitor. The basic balance is now at its weakest post-crisis levels pointing to a EUR/USD break below 1.05 based on previous relationships.
On the real rates side, the recent Fed repricing has helped push near-term "fair value" back down below 1.10, and it is our belief in the continuation of a Fed hiking cycle - however shallow - that is crucial for this rate spread to continue to widen.
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