EUR/USD jumps back above 1.0900 post hawkish ECB minutes

• EUR/USD jumped in wake of the latest hakwish ECB minutes and is back above 1.0900.
• However, the even more hawkish Fed minutes on Wednesday means the pair failed to sustain a lasting rally.
• As the Fed/ECB policy divergence widens, traders may view a retest of the 1.0950 area as a sell zone.

Following the release of a resoundingly hawkish set of ECB minutes on Thursday, the euro is trading on the front foot. EUR/USD has jumped about 20 pips from around 1.0890 to around 1.0910 in wake of the release, which said a large number of governing council members viewed the high level and persistence of inflation as warranting immediate steps towards policy normalisation. The minutes revealed that members also argued that the central bank’s three criteria for rate hikes had been met.

The net result is that Eurozone yields are moving higher again as traders up their bets that the ECB starts hiking interest rates in the latter half of the year, a short-term positive for the euro. However, the pair has not been able to rest earlier session highs in the 1.0930 area, nor mount a meaningful challenge of Wednesday’s highs just above it in the mid-1.0930s.

Fed hawkishness, both in the form of recent public remarks from policymakers and in the form of Wednesday’s release of FOMC meeting minutes, is likely making EUR/USD traders reluctant to pile into further longs. Rallies back towards resistance in the 1.0950s area (late March lows) likely remain a sell in the eyes of most traders. Even if the ECB is pivoting hawkishly in moving towards rate hikes, it remains well behind the Fed.

Ahead, more Fed speak, this time from St Louis Fed President James Bullard (one of the Fed’s most hawkish members), is scheduled for 1400BST shortly after the release of US weekly jobless claims figures. There will then be a barrage of further Fed commentary from the likes of Charles Evans, Raphael Bostic and John Williams in the later hours of US trade. EUR/USD traders will thus remain focus on central bank divergence plans, but should also note US Treasury Secretary Janet Yellen will be on the wires from 1530BST.