Why the Euro broke higher

EUR/USD finally cut through resistance in the 1.1000/20 zone on Thursday as the euro led G10 FX. USDX is on course for its biggest monthly fall of the year. The Canadian and US dollars were the laggards as risk trades dipped late on China worries. The April US PCE report and comments from Powell are due on Friday along with a Trump announcement on China. The Premium Dow30 short was stopped out at 25700, while the EURUSD long is a few pips away from 200-pip gain.

The thinking in the market at the moment is that economies are opening up and that the virus isn't so dangerous after all. There are reasons to doubt that and to fear a second wave but that's clearly the mode the market is in. And let's not forget the bigger than expected EUR 750 bn loan package from the EU, whose initial announcement coincided with EURUSD's first jump.

US markets staged a remarkable rally, but EU has more upside ahead. Italy's MIB is just testing the 38.2% retracement of the pandemic fall and that comes after a week of strong gains. If everyone is going to open up and recover, then the catch-up trade is outside the US. Needless to say there are undoubtedly differences because the eurozone doesn't have the same fiscal capacity but at the same time, debt monetization is a lower risk.

On net, European stock markets are better value right now than US markets if you assume a full reopening. Again, it would be easy to make arguments against that statement but that's where the market is at for the moment and it's what finally boosted EUR/USD above 1.10.

The pair rose as highs as 1.1093 before a sag late in the day. Risk trades were hit and stock markets reversed into negative territory when Trump said he will announce something on China Friday, presumably some kind of retaliation for the Hong Kong security law. All evidence points to some ineffectual sanctions against individuals and companies but Trump is unpredictable and this is a chance for him to flex his 'tough on China' muscles ahead of the election.

There's no set time yet for the press conference and there's a high risk of leaks. The day will also feature the April US PCE report and the focus will be on spending, which is forecast to contract by 12.7%. Fed Chair Powell will also speak at 1500 GMT. This is his last opportunity to send a message ahead of the blackout period and given the positive tone in markets, the risk is that he dampens expectations for future FOMC action.