Markets are grappling with a surge in volatility as the Euro continues its ascent, the Japanese Yen struggles, and the Norwegian Krone rallies on hot inflation data. Traders are watching these developments closely while deciphering key economic data, particularly in the U.S. and Europe, in the days ahead.
EUR/USD: Will the Euro Keep Climbing?
The Euro’s rally remains in the spotlight as EUR/USD pushes higher, with traders caught between two potential scenarios. The pair has seen persistent buying momentum, especially as it bounced back from near the 1.0800 level earlier today. The key question now is whether the euro is overbought in the near term, creating an opportunity to buy on dips, or if it will continue its upward trajectory toward the 1.1000 area without much consolidation. For now, the trend appears poised to continue unless a significant surprise emerges from U.S. CPI data on Wednesday, which could momentarily shift sentiment.
In contrast, EUR/CHF has experienced more notable consolidation, dipping below 0.9500 before finding support, with the recent rally’s gains being trimmed. However, the focus remains on the upside, with today’s lows offering initial support and a deeper reversal area forming between 0.9425-0.9500.
The broader news flow remains supportive for the Euro, particularly Germany’s push to unlock debt brake rules to fund EUR 500 billion in infrastructure and defense spending. Chancellor Friedrich Merz is courting the Greens for support ahead of a March 25 deadline to secure approval for the fiscal package.
USD/JPY: Testing Lower Boundaries Amid Yield Spikes
USD/JPY remains a key focus as it continues to navigate lower after breaking the December 148.65 low. Today, the pair is contending with the 61.8% retracement of its rally from sub-140.00 to just below 159.00. The Japanese Yen’s upside potential has been diminished, partly due to the surge in European yields, which have shifted market attention away from JPY. While Japan may prefer a weaker yen to maintain positive relations with the U.S., the upcoming end of Japan’s financial year at the end of March adds a crucial time frame for USD/JPY movements.
Looking ahead, USD/JPY could test the 140 level by the end of April, depending on U.S. CPI data this week. While JPY positioning in U.S. futures remains historically high, it’s still smaller than previous short positions, suggesting room for further yen strength should conditions align.
NOK: Inflation Spike Fuels Rally
The Norwegian Krone surged today after hotter-than-expected CPI data from Norway. Monthly CPI jumped 1.0%, and the YoY figure came in at 3.4%, significantly above expectations. This has cast doubt on the Norges Bank’s plans for a rate cut in March, prompting a sharp rally in NOK. Prior to this surge, NOK had been under pressure from falling oil and natural gas prices, but today’s data reinvigorated the currency, especially against the Euro, with EURNOK finding strong support around the 11.80 level.
However, NOK’s outlook remains mixed, as the Norwegian economy faces both upside and downside risks. A potential slowdown in global oil prices or a de-escalation in the Ukraine conflict could add downside pressure. On the other hand, fiscal expansion in Europe, particularly in aluminum and defense sectors, could benefit Norway in the longer run.
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