- EUR/USD is consolidating around the mid-point of Friday’s trade close to 1.1950.
- The pair has largely ignored Eurozone fundamentals, conforming instead to US dollar dynamics.
EUR/USD is consolidating around the 1.1950 level as volumes die down ahead of the weekend. That puts the pair around the mid-point of the day’s trading range; EUR/USD started the session in the 1.1980s, but USD strength saw the pair drop as low as the 1.1910s as US players arrived. On the day, the pair looks set to close with losses of about 0.25% or around 30 pips, but on the week that means the pair has still rallied by about 50 pips (or 0.4%).
Euro conforms to dollar flows, shrugs of Eurozone updates
There has been plenty of Eurozone related news to keep up with on Friday; Industrial Production data for January was much stronger than expected, but pandemic news has been bad (concerns in France and Germany about a coming third wave and Italy going back into lockdown) and the ECB is leaking sources to the press like there is no tomorrow (though nothing overly important was leaked on Friday, with the ECB essentially just coming across as frustrated by the slow pace of implementation of the EU Recovery Fund).
Rather, the pair has traded mostly as a function of US dollar dynamics; initially, the dollar traded as a function of US government bond yields, rallying in tandem with them during the Asia Pacific session and into the European morning – US fiscal stimulus optimism (as well as fears it might cause the US economy to overheat) was touted as driving yields higher.
But the dollar’s fortunes changed in wake of a stunning Canadian labour market report that gave CAD a huge boost, with this huge boost seemingly coming predominantly at the expense of the US dollar rather than its other G1 counterparts. This helped EUR/USD recover back to the 1.1950s.
Looking ahead, US Retail Sales on Tuesday followed by the FOMC monetary policy decision on Wednesday will be the key stateside events to keep an eye on next week. Next week’s data calendar is lighter in the Eurozone, thus focus will likely revert to the worsening state of the pandemic there as well as the ongoing hiccups the bloc’s vaccine rollouts continue to face.
Credit: FX Street