Currently, EUR/USD is trading at 1.1131, down -0.25% on the day, having posted a daily high at 1.1175 and low at 1.1104.
EUR/USD is consolidating the lofty heights that have been ramped up this week on profound dollar weakness. DXY is virtually flat to yesterday's close but still under water this month, down -4.55% YTD. The euro has dusted itself off recently as investors look ahead to the potential of a less dovish ECB and possible tones of hawkishness in time to come amidst a more stable political outlook.
However, Peter Vanden Houte, Chief Economist, Belgium, Eurozone explained, "The minutes corroborate our views on the ECB’s likely exit strategy. We expect the risk to the economic outlook to be characterised as more balanced in the June statement, while June or July could also see a small change in the forward guidance, namely the dropping of the expectation that interest rates could be lowered further. In September, we expect the announcement of the extension of the QE programme until at least June 2018, with at the same time a reduction of the monthly amount purchased (we expect on average a halving of the amount for the period January-June 2018)."
While it may be too soon to factor in the possibility of the ECB tapering in time to come and indeed communication from the ECB may only change initially by way of homeopathic doses to avoid any “taper tantrum”, as Vanden Houte put it, when looking across the pond to the US, however, the current climate is not as rosy as the markets had been factoring in for 2017 under Trump's presidency.
While Trump may have implemented a vast number of his promises within his first 100 or so days, the fiscal policy investors had been expecting is in jeopardy. Yields tell the story this week with 10 years below the psychological 2.3% again. The economic picture is fragile and so are US politics; that is something that will potentially anchor the Fed, weighing on the dollar and investor confidence for US assets for the medium term. The euro can find support o a narrowing of yields and a more bullish outlook politically and economically for the time-being, post Macron's victory.
Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, technical indicators have turned sharply lower, leaving extreme overbought territory. "The price approaches is 20 SMA, heading north around 1.1080, providing a strong dynamic support. Below it, the next downward target comes at 1.1045, while in the case of a recovery, a break through the daily high should put the pair one step closer to 1.1260."