EUR/USD looks to ECB, US data for volatility
June 3 (Reuters) -EUR/USD traded close to flat Monday but near the mid point of the recent 1.0885-1.0789 range and a break of that range or the broader 1.0450-1.1150 range in place since October seem to have low probabilities unless outliers emerge that will drive increased volatility.
Investors are focused on the ECB meeting Thursday, with 25bps cut widely expected and the press conference key to expectations afterward. Recent inflation data left investors doubting the prospects for additional rate cuts and if President Christine Lagarde were to hint that more cuts are unlikely, then euro zone yields might rally.
The Fed is likely on a similar path as the ECB, however, as investors now have priced in a total of 38bps of cuts for 2024.
The increasing lack of policy divergence has helped German-U.S. 2-year yield spreads, which EUR/USD is correlated with, to trade near the mid-point of its -155/-205 range its been in since October.
Option investors have hedged for the ranges to hold.
A total of 20 billion euros expiring this week sit in the 1.0800-1.0900 range.
Implied volatilities for 1-month, 3-month and 12-month tenors hover above 2-year low which suggests investors don't expect large EUR/USD moves.
U.S. April JOLTS, May ISM manufacturing and services PMIs, weekly claims and May payroll risks loom.
EUR/USD investors will need those results to drastically miss their mark if they expect volatility to pick up.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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