EUR/USD overbought

Matthew Ryan, CFA Ebury

Last week's first quarter GDP (+0.4%) and April inflation (2.2%) data out of the Euro Area both surprised to the upside last week, muddying the waters a bit on the narrative that the deflationary impact of the tariffs clears the way for significant further ECB cuts.

The terminal rate is priced by markets at 1.5%, which implicitly assumes significant further falls in core inflation from its levels currently not far from 3%. Yet, with Eurozone unemployment steady at historical lows, services inflation stubbornly high and the prospect for massive German fiscal stimulus this may be difficult to achieve.

The rest of the week looks set to be relatively quiet in the Euro Area, aside from the admittedly dated retail sales print for March on Wednesday morning.

We continue to view EUR/USD as slightly overbought in the near-term, although any pullback will be very much dependent on US factors, namely the market’s view towards the tariffs.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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