Forex Daily Wrap: EUR/USD Surges Above 1.09 Handle

DAILY FX WRAP: The USD’s decline persists as EUR/USD surges above the 1.09 handle following the less hawkish than expected comments from Fed’s Bullard and Mester

Overnight, NZD outperformed underpinned by a sell-off in AUD/NZD as the cross touched a fresh record low, attributed to large fund liquidations while NZD/USD hit a 2-month high after large buy-stops were triggered in the pair at 0.7610. However, these movements were not sustained through the European session as NZD/USD pulled off highs and AUD/NZD came off record lows in a session where fundamental news was limited. As European participants entered the market, AUD/USD reclaimed the 0.7800 handle, further bolstered by selling in EUR/AUD after the earlier break below the 1.3900 handle and medium-term support at 1.3881 (Wed & Thurs low).

In the European session, the USD started in the green, however continued its decline after the Fed indicated at last week’s FOMC meeting that a rate liftoff may not occur as quickly as the market once expected coupled with comments from Mester and Bullard this morning, who deviated from their usual hawkish tilt. Furthermore, Mester signalled that the Fed are equipped with easing tools should the US economy unexpectedly slowdown, however she did warn that she does not expect that to happen. Meanwhile, analysts at HSBC (LONDON:HSBA) state that the USD is nearing the end of its bull-run and add that historically the move was overdone. Weakness in the USD came to the benefit of EUR/USD where the pair broke above 1.0900 and trade higher by over a point. Elsewhere, GBP/USD underperforms the major pairs with further uncertainty regarding the upcoming UK General election in May continuing to gain traction with the latest Populus poll showing Labour cutting their slight lead to 2 points against the Conservatives, while tomorrows CPI reading vs. Exp. 0.1% (Prev. 0.3%) is expected to get ever closer to deflationary territory with GBP weakness partially attributed to positioning ahead of the release.

Looking ahead, tomorrow provides a loaded data slate with French, German & US Manufacturing PMI’s alongside US & UK CPI, with close attention particularly on the inflation numbers as both central banks are focusing on these data points to justify a rate hike in the coming year.