EURUSD Spikes Above 1.09 After Reuters Telegraphs ECB Hawkish Turn

EURUSD just ran stops above 1.09 after Reuters reports what appears to be an ECB strawman that it may shift its policy in June.

Reuters reports that three sources on and close to the bank's Governing Council told Reuters that with the threat of a run-off between two eurosceptic candidates in France averted, and with the economy on its best run in years, many ratesetters see scope for sending a small signal in June towards reducing monetary stimulus.

There is, however, little appetite to change at this Thursday's meeting the pledge to buy bonds at least until the end of the year and to keep rates at rock bottom until well after that. A move in June, however, might mean changing the wording of the ECB's opening statement to reflect improved prospects for the economy. Some or all the references to prevailing downside risks to the outlook, to the possibility of further rate cuts or to larger asset purchases may be taken out, the sources said.

"The discussion will be on removing some of the easing biases," one of the sources said. "I can't say how quickly it will happen because that depends on the data."

The ECB declined to comment.

The reaction is modest and appears more algo-driven stop-run than systemic...

As Citi notes, EUR is bid on the latest ECB sources, suggesting no changes this Thursday but a possible tweak in language at the June meeting. As such, take a look at levels:

  • For EURUSD, if we close above post-election highs (1.0938) then the danger is we keep squeezing up to levels around 1.1100-1.1140 area where we have seen a series of pivots over the last year, CitiFX Technicals warn. We're currently trading at 1.0930.
  • Meanwhile in CrossEUR, on Monday, EURJPY effectively tested and held the 76.4% Fibonacci retracement against the March high which came in at 120.97. We are again approaching that level today.
  • EURGBP is edging towards levels full of moving averages. The 100d MA and 55d MA lie right ahead at 0.85527-0.85602.