The greenback is also coming under technical pressure. The Dollar Index touched a two-week low and is forming a bearish version of a technical indicator known as a head and shoulders, which could target a decline of about 2%.
The euro climbed from a 10-month low after ECB policy makers, including Chief Economist Peter Praet, said that the June 14 meeting will be pivotal for reaching a decision on when to end bond buying. Given that the shared currency accounts for a third of the dollar’s trade-weighted indexes, it can be the main driver for greenback gauges.
Should ECB president Mario Draghi sound as optimistic as his colleagues, the euro may remain supported as contagion risks from Italy’s populist government have waned. Resistance at $1.1996-$1.2096 should absorb buying pressure, even if the Fed leans somewhat dovish. If Draghi sounds more reserved and rate a hike in the summer of 2019 gets priced out, the common currency may pare its recent advance, with pivotal support coming at $1.1617, the June 1 low.
Alongside central bank decisions, trade war concerns are likely to remain on traders’ radars, with the Group-of-Seven meeting in Quebec and next week’s historic US-North Korea summit in focus. While the effects of trade and geopolitical risks tend to escalate and dissipate rather quickly, they can provide short-term direction. For example, an ECB-on-hold amid elevated geopolitical concerns could see the euro-yen cross heading toward cycle lows, while it may need a trade truce to move above the 132handle.
While a trade war or renewed concerns about conflict on the Korean peninsula ought to bolster traditional haven currencies, the Swiss franc may lag behind the yen should the so-called Vollgeld vote on June 10 not go as the market expects.
Spot and options markets suggest traders see a very low chance that the Swiss vote for an initiative on sovereign money, where the role of private banks would be upended when it comes to money supply.