Divergence on the menu?

The market is tuning back into the age-old rhythm of divergence—growth divergence, yield divergence, and now, political divergence. With whispers of a 3.3% US GDP print echoing through the streets, EUR/USD feels like it’s walking the plank. There’s a clean runway here for another leg lower, with momentum and reversion traders alike fading every bounce like they’re front-running a downtick in a tired equity chart. The 1.1500 floor is looking fragile—break it, and we’re staring at 1.1450 as the next pit stop on the descent.

The dollar’s resurgence isn’t a one-trick pony. We’ve had the US–EU tariff reset, month-end squaring, and a flush in dollar shorts, all of which add lift. But now, it’s back to the macro meat: growth and the Fed. Yesterday’s data was a bit of a split ticket—narrower trade deficit, solid confidence reads, but soft JOLTS job openings. Still, the mix favours yield resilience. The real show comes today: Q2 GDP, core PCE, personal consumption—all packed into one macro cannon shot, just hours before Powell walks into a press room laced with political tripwires.

The market may not be pricing much from the Fed today, but Powell’s presence has become the risk event itself. Trump is circling with pressure to cut rates or get out of the way, but Powell isn’t blinking. If he reiterates the Fed’s independence and commitment to data-dependent policy, that alone puts a floor under US rates. Add a GDP beat and sticky PCE, and we’ll get the kind of two-stroke ignition that FX traders live for. Expect the USD to ride high, particularly against currencies tethered to growth laggards like the euro.

Over in Europe, the economic pulse is still faint. France offered a flicker at 0.3% QoQ, but Germany’s contraction and flat eurozone prints are the main act. The earlier Q1 export‑boost is fading fast, and the rest of today’s EU releases—Spain CPI, ECB wage data—won’t cut it. Europe’s story right now is one of stagnation at the worst possible moment.

This isn’t just about macro prints—it’s about narrative control. The US is pushing higher on growth and standing tall politically; Europe is watching the boat leave the dock. The common lean among spec desks on the EUR/USD is selling strength into the 1.1570/85 band, targeting a clean break of 1.1500 and leaning into a slide toward 1.1450. A hotter GDP number and a composed Powell are the combo punch this setup wants. If the data comes in as expected—or stronger—the euro won’t just underperform, it’ll unravel.

In a tape driven by divergence, momentum is the tailwind—and right now, it’s blowing in the dollar’s favour.