Summary:

As rate cut expectations in the Eurozone have been factored in for a few weeks, the market is now reassessing the timing of a rate cut by the ECB as economic conditions improve. However, Governor Bailey's recent remarks suggest that rate cuts may occur in the upcoming quarters, potentially sooner than the market currently anticipates. Today, the focus is on UK labor data; any significant downside surprise could lead markets to believe a rate cut will happen in June.

EUR/GBP 4H

Macro View:

EUR: Presently, market sentiment leans towards the sustained enhancement of Eurozone external imbalances serving as a substantial pillar bolstering the EUR, particularly against other currencies. Investors in the foreign exchange arena anticipate further validation of the ongoing improvement in the Eurozone economic landscape. They await updates on deliberations within the Governing Council, particularly regarding the prospective timing of forthcoming rate adjustments. Absent substantial data setbacks or dovish rhetoric from ECB officials, the EUR is anticipated to maintain its resilience relative to other G10 currencies.

GBP: The outcome of the May policy meeting may render the GBP susceptible to potential disappointments in UK data, potentially catalyzing preemptive actions by investors to anticipate more assertive easing measures by the BoE. Governor Bailey's recent remarks hint at the likelihood of forthcoming rate cuts in the ensuing quarters, possibly outpacing current market expectations. Notably, the prospect of a June rate cut remains contingent upon prevailing circumstances rather than being a foregone conclusion. In the immediate term, market attention will pivot towards forthcoming UK labor market statistics followed by inflation data. Additionally, scrutiny will be directed towards comments from members of the MPC for insights into the evolving consensus on the necessity for rate adjustments.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/GBP Current Retail Long/Short Position

The DXM shows that 32.7% of traders are bullish, while the remaining 67.3% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

EUR Futures’ seasonality movement

The seasonal pattern for the EUR suggests bullish momentum in the near term.

Sources: Prime Market Terminal

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