Euro Drops After Hitting One-Week High as PMI Data Come Mixed

  • One-week volatility in euro crosses climbs on ECB meeting
  • Pound halts three-day gain as technical gauge caps for now

The euro retained its resilience and stayed close to an one-week high hit during the Asia session despite softer manufacturing data out of France and Italy.

While strategists warn clients on short-term downside risks, Europe’s shared currency remained comfortably above the $1.1200 handle. It may now be down to data out of the U.S. for the euro to either hit a fresh high above $1.1257 or to test bidding interest near $1.1190, as ADP and manufacturing data capture traders’ attention.

Investors who look for euro weakness are in no hurry to sell at current levels and prefer to fade a rally toward the Nov. 9 high at $1.1300, according to foreign-exchange traders in Europe and the Middle East. Chasing the market lower at the moment poses few risks as sizable bidding interest is seen extending all way to $1.1100 from current levels, said the traders, who asked not to be identified as they weren’t authorized to speak publicly.

As the one-week tenor in option structures now envelopes the European Central Bank policy meeting on June 8, implied volatilities in euro crosses jump as demand for long vega exposure on the event is seen. Bets for large euro price swings versus the dollar and the pound rise to their highest since May 8, while demand for exposure over the Federal Reserve meeting on June 14 remains subdued. 

  • The dollar traded higher versus most of its G-10 peers; it was also higher as measured by the Bloomberg Spot Index, rising for the first time in three days
    • A total of EU3.6b expire Thursday within 1.1200-50 in EUR/USD: DTCC
  • The pound is still caught in election turbulence; interbank traders noted that long vol trades into the elections saw demand a second day as May’s absence from latest TV debate may favor the Labor party further and polls could cause additional noise in the spot market
    • Cable was lower for the first time this week and was down by 0.2% to 1.2870 as of 10:09 a.m. London time versus 1.2841 day low
    • Its bullish momentum waned after testing Wednesday the 21-DMA that currently stands at 1.2924; the technical indicator has defined the lows and highs of the pair since May 11
  • The yen remains in orbit around its 55-DMA, now at 111.28 per dollar; USD/JPY gains 0.3% to 111.10 as it looks to erase its losses since Tuesday
  • The Australian dollar pared a large part of its losses and stood at 0.7409, compared to a drop of as much as 0.6% to 0.7385
    • AUD/USD felt the heat from a miss in China’s Caixin PMI even as Australian retail sales beat estimates
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