Bullish Euro Behavior to Persist Amid Bets for QE Program Adjustment
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EUR/USD continues to approach the August 2015-high (1.1714), with the pair breaking to fresh monthly highs even as the European Central Bank (ECB) remains in no rush to remove the zero-interest rate policy (ZIRP).
The reaction to the ECB interest rate decision suggests there’s budding speculation for a ‘taper tantrum’ as the Governing Council will discuss the fate of the Public Sector Purchase Programme (PSPP) in the autumn. With the non-standard measure set to expire in December, President Mario Draghi and Co. may start to wind down its asset-purchases over the coming months as ‘incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead.’
Unless the ECB extends the deadline for the quantitative easing (QE) program, the euro-dollar exchange rate may exhibit a bullish behavior throughout the second-half of the year as the ECB gradually drops its dovish outlook for monetary policy.
Topside targets remain on the radar for EUR/USD as the pair clears the 2016-high (1.1616), with both price and the Relative Strength Index (RSI) preserving the bullish trends from earlier this year. A closing price above the 1.1670 (78.6% expansion) hurdle may spur a more meaningful run at the August 2015-high (1.1714) as the momentum indicator appears to be pushing back into overbought territory, with the next region of interest coming in around 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion).
Retail trader data shows 24.6% of traders are net-long EUR/USD with the ratio of traders short to long at 3.06 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06683; price has moved 9.2% higher since then. The number of traders net-long is 15.0% lower than yesterday and 9.8% lower from last week, while the number of traders net-short is 11.1% higher than yesterday and 12.0% higher from last week.
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--- Written by David Song, Currency Analyst
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