Next level
EURUSD has managed a relatively smooth ascent to its current levels, around 1.18. That is despite significant resistance levels, most notably around 1.17. A large collection of option strike prices gathered around this key level and the price history of the pair shows us its significance. Sustained closes above this level since last week add credibility to this move higher. This relative plain sailing has left many questioning whether EURUSD could now even touch 1.20.
In support of this case, the fair value of EURUSD has moved higher. This measure strips out the factors of market sentiment and considers fundamentals such as the relative terms of trade, inflation, and critically short-term swap rates across the currency pair. The fact the fair value of EURUSD has risen several cents in recent weeks means the risk premium of the pair is lower. Therefore, 1.20 would be more easily obtained without USD selling becoming over stretched.
These fundamentals that have allowed the Dollar to weaken once again are threefold: receding Fed rate expectations (including Fed independence questions), tariffs, and the deficit. There are key events happening this week which could impact each of these. Most notably, the debate of Trump’s One Big Beautiful Bill Act and a barrage of jobs data as is customary at the start of any month present major risks. Don’t forget too the expiry of reciprocal tariff pauses just around the corner next week.
The market is clearly still persuaded to sell the Dollar as evidenced most recently by its relatively limited buying of USD during a significant oil price spike and heavy selling once those risks receded. The question now will be whether there can be a material deterioration in each of those triggers to allow EURUSD to slip even higher. Expect heightened sensitivity to data this week starting today with Eurozone inflation data (10:00) and the US ISM survey (15:00).
Discussion and Analysis by Charles Porter
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