FxWirePro: Don’t get too excited about bullish EUR/USD

EUR/USD on the march higher but that may not last,

• Euro is up against the USD for the third consecutive trading session and has recovered from 1.11 to 1.121 as of today.
• After last week’s break into new yearly low, a follow-through was expected in EUR/USD but wasn’t just there, which definitely adds to a bullish bias in EUR/USD.
• The main driver for the pair has been USD, which has declined around 0.75 percent since its double top peak on Thursday and Friday last week.

• Over the past week, rate cuts odds have significantly increased. The Federal funds futures market is currently pricing a 64 percent chance of a rate cut in 2019, and price a 23 percent chance that the Federal Reserve would cut rates twice this year. While the market is broadly certain that the Fed would hold rates at this week’s meeting, the market is pricing a 21.6 percent chance of a rate cut by the next meeting in June.

• In addition to that, today’s economic releases from the Eurozone have broadly been positive. French CPI improved to 1.4 percent y/y, Spanish CPI improved to 1.6 percent y/y in April, Spanish GDP beat forecasts with 2.4 percent y/y growth, Spanish retail sales were much better at 1.7 percent y/y growth in March. Overall Eurozone GDP improved to 1.2 percent y/y growth in Q1, and the unemployment rate also improved to 7.7 percent. Even Italian GDP growth beat estimate.

However, don’t get over excited about a bullish EUR/USD, at least not yet, especially with the monetary policy decision from the U.S. Federal Reserve due tomorrow.

Moreover, retail sentiment based on data from IG Markets still pose doubts on a bullish EUR/USD. The retail sentiment is a contrarian indicator. According to the latest data, 59 percent of the retail positions are long EUR/USD, which gives the pair a bearish bias.