ECB Hawks Out in Force, EUR/GBP Breakout Ahead of NFP

EUR/USD, EUR/GBP Analysis and News:

ECB Hawks Prompt Modest Euro Reprieve

ECB Officials have been out in force over the past 24hours attempting to talk up prospects of a July rate increase. Among the more notable comments stemmed from ECB’s Villeroy, who stated that there is a reasonable case to raise rates into positive territory by year end. What’s more the ECB policymaker also stated that a too weak Euro would jeopardise price stability objective. In turn, this has led to a modest recovery in the single currency with EUR/USD testing 1.0600. However, with the outlook for the Euro Area much more bleak than the US, I suspect the bias remains fading rallies in EUR/USD.

That said, a better cross for a hawkish ECB trade would be EUR/GBP. Not only have we seen a key tech breach above the 200DMA and April high, but the BoE have sent their strongest signal that current money market pricing is too aggressive and thus leaves further room for the Pound to underperform. Support in EUR/GBP situated at 0.8515-20 and 0.8440-50. I would also add that on the topside, with 0.8600 previously capping rallies and the RSI teetering on overbought territory there is a chance of some profit taking to bring the cross back down to support.

EUR/GBP Chart: Daily Time Frame

Source: Refinitiv

Non-Farm Payrolls

The main highlight for today’s session will be the non-farm payrolls, where not only the headline will garner attention but also the wage components. Overall, data in the lead up to the figure has been on the slightly softer side, ADP printed softer than expected at 247k (Exp. 390k), while both ISM manufacturing and non-manufacturing components were notably weaker, in which the latter fell into contraction territory. I have said previously that the ADP data is very poor at predicting NFP, however, with both ISM surveys show softer figures, this does add to the downside risks for today’s NFP.