EUR/USD has maintained its upward trajectory, steadily climbing without significant external triggers. The central question remains whether EUR/USD will finally break free from its persistent 18-month trading range, largely confined between 1.05 and 1.11. Market sentiment, as reflected in FX options, suggests a growing bias towards an upside breakout, at least in the near term.
The one-month risk reversal for EUR/USD – which compares the price of euro call options against equivalent put options – is increasingly favoring euro calls. This trend is occurring alongside rising implied volatility, indicating active buying of euro call options and reinforcing the bullish outlook.
Today’s eurozone economic calendar is relatively quiet, with significant data releases not expected until Thursday’s PMI figures. However, the latest eurozone monthly (June) current account data is being released today. This data reveals a substantial surplus of nearly €30 billion per month, a significant turnaround from the €30 billion monthly deficits experienced in 2022. This positive shift in the current account is a supportive factor for the euro, contrasting sharply with the situation in 2022 which contributed to EUR/USD weakness. Adding to the positive backdrop, lower oil prices, potentially driven by developments in the Middle East, are also favorable for EUR/USD.
Looking at key technical levels, the 1.1040/1.1050 area should act as intraday support for EUR/USD. On the upside, the 1.1110/1.1140 zone represents significant medium-term resistance. A decisive break above this resistance level would be a noteworthy development, potentially signaling a more sustained upward move for the currency pair.
In other market developments, the Riksbank is expected to cut interest rates by 25 basis points to 3.50% today. While market speculation suggests a small possibility of a larger 50 basis point cut, analysts anticipate the Riksbank to signal at least two further rate cuts later in the year. This expectation is based on the Swedish economy’s vulnerability to higher interest rates and the recent decline in inflation expectations below 2%. Despite the anticipated rate cut, a significant rally in EUR/SEK is not expected. Unless the Riksbank surprises with a deeper 50bp cut, the prevailing view is that a softer US interest rate environment could exert downward pressure on EUR/SEK, potentially pushing it towards the 11.30 level.
Chris Turner
