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  • Writer's pictureMike Paterson

Euro rallies on EU Recovery Fund plans

Thursday 28 May 2020

We've still got the backdrop of US-China tensions, China-HK, and COVID 19 fallout concerns but yesterday

saw the Euro grab some headlines as the EU Commission proposed a larger than expected Recovery Fund package of €750bln rather than the previously Merkel-announced €500bln. The new proposals are a mix of €500bln grants and €250bln loans but it all still has to be ratified and already we've heard some dissenting noises.Either way the Euro caught a bid across the board albeit with some reality-check retreats.

The Pound also saw another wobble on more Brexit talk spats and BOE governor Bailey not ruling out further interest rate cuts.A raft of US data today at 12.30 GMT includes, weekly jobless claims, GDP and Durable Goods and may yet excite the algos if any big surprises.

A quick heads-up that I'm hearing month-end flows will be USD negative again with GBP and EUR reported to be the biggest beneficiaries so we might see some front-running. Hopefully I will be able to provide more info tomorrow but forewarned is forearmed today.

GBPUSD fell to test 1.2200-20 on the Brexit/Bailey/firmer EURGBP combo before seeing a rally to look at 1.2280-85 and more re-sells placed as per my earlier tweet.Still some dip demand to be expected on month-end flows but good two-way pips to be had again meanwhile I think. EURGBP duly held 0.8900 helped by those large option expiries and with month-end demand in play as per my udates here then accelerated higher on the bearish GBP/bullish EUR news before failing at 0.9000 ( 1.1110) and that remains a decent EUR cap/GBP support for the moment.GBPJPY failed at 133.00 again and fell to 131.65 as GBP came under attack.Decent rally on since as core pairs both found dip demand but sellers lurking at 132.50 and capping so far.

I stay poised to sell GBP rallies overall and buy back in the dips as ever but patience continues to be a virtue and entry level key as always. Caution advised as we head into month-end flows though.

USDJPY duly failed into 108.00 again but finding some dip buyers on the general USD demand. EURJPY rallied on the general EUR demand/better risk combo before finding more sellers around 119.00 but decent dip demand since. EURUSD fell below 1.0950 but held 1.0925-35 where we had that large option interest before finally cracking 1.1000 on the Recovery Fund news but ran into sellers at 1.1030-35 only to retreat below 1.0990 into options expiry time as I tweeted/warned with those large expiries in play. Another rally since but seems 1.1035 a decent line in the sand.

USDCHF is holding 0.9680 again after we saw a surge on the EURCHF rally helped by more intervention talk from SNB's Jordan. No surprises but it appears they took good dvantage of the EUR demand generally to push EURCHF up to test 1.0700 only to fall back to 1.0630 where there now seems a new line in the sand.

AUDUSD tried to hold 0.6650 where we had some option expiries but the break below 0.6630 triggered stops as the larger 0.6590-00 expiry interest became the target and duly smashed. Rallies have been limited since but good-two price action still to be had. USDCAD had a decent roller coaster ride of its own amid the variable USD/oil/risk combo and from 1.3730 we failed at 1.3820 only to fall back to from whence it came before another bounce.

You don't need me to tell you that there's lots going on right now, and the foreseeable future, so don't forget to take advantage of my 1-2-1 mentoring sessions if there's areas of trading these volatile markets or how to make best use of the order boards and expiries, that you might need some further help with.

Let's continue to be careful out there in all things. Staying safe must be our main priority still.

Interbank rates:  08.15 BST

GBPUSD   1.2268

EURUSD   1.1007

EURGBP   0.8970

GBPEUR   1.1147

GBPAUD   1.8555

GBPCAD   1.6886

GBPJPY   132.28

GBPZAR   21.3588

GBPHKD   9.5129

USDJPY   107.81

USDZAR   17.4465

EURJPY   118.66

EURCHF   1.0657

EURHKD   8.5341

AUDUSD   0.6611

USDCAD   1.3763

USDCHF   0.9683

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