Euro Outlook:
- Peripheral bond yields continue to relax after the European Central Bank’s emergency meeting last Wednesday.
- EUR/JPY and EUR/GBP rates are in bullish breakout territory, while EUR/USD rates are rangebound.
- Per the IG Client Sentiment Index, EUR/JPY and EUR/USD rates have a mixed bias while EUR/GBP rates have a bearish bias.
ECB Bides Time
Less than a week after the June European Central Bank policy meeting, the Governing Council reconvened in order to calm down Eurozone sovereign bond markets. Peripheral bond yields, particularly those in Greece and Italy, began to widen out rapidly versus their core (e.g. German) counterparts, rekindling fears of a revitalized Eurozone debt crisis.
Yet since the ECB’s cryptic and vague remarks about preventing fragmentation in bond markets, Greek and Italian bond yields have calmed down in enough manner to keep fears at bay. The ECB’s efforts to bide time for Eurozone bonds have proved enough to prevent the Euro from being weighed down in a significant way; in fact, the Euro has been one of the better performing major currencies since the lows established last Wednesday.
The rally in the EUR-crosses has taken a different shape depending upon the pair, however. While EUR/JPY and EUR/GBP rates remain on the path of bullish breakouts, EUR/USD rates are merely trading higher into the middle of a range carved out since late-April.
EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 1)
EUR/USD rates continue to recover from last week’s lows, although in the grand scheme of things, nothing has changed: the range in place since late-April continues to define price action. EUR/USD rates are above their daily 5- and 8-EMAs but below their daily 13-, and 21-EMAs; the EMA envelope remains in bearish sequential order. Daily MACD is trending lower below its signal line, but the differential is narrowing, and daily Slow Stochastics are moving up towards their median line. Range trading remains the preference until either support around 1.0349/97 breaks to the downside or resistance around 1.0757/1.0806 is breached to the upside.
IG Client Sentiment Index: EUR/USD Rate Forecast (June 21, 2022) (Chart 2)
EUR/USD: Retail trader data shows 66.88% of traders are net-long with the ratio of traders long to short at 2.02 to 1. The number of traders net-long is 1.79% higher than yesterday and 0.79% lower from last week, while the number of traders net-short is 0.40% higher than yesterday and 8.49% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.
EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 3)
Amid the rebound in risk appetite and growing divergence between the Bank of Japan and other major central banks, EUR/JPY rates retain the most bullish setup among the major EUR-crosses. Momentum remains firmly bullish, with the pair fully above its daily EMA envelope, which is in bullish sequential order. Daily MACD is trending higher above its signal line, while daily Slow Stochastics are approaching a return into overbought territory. In the near-term, a return to the 2022 high at 144.25 appears likely.
IG Client Sentiment Index: EUR/JPY Rate Forecast (June 21, 2022) (Chart 4)
EUR/JPY: Retail trader data shows 38.05% of traders are net-long with the ratio of traders short to long at 1.63 to 1. The number of traders net-long is 3.01% lower than yesterday and 33.68% higher from last week, while the number of traders net-short is 8.25% higher than yesterday and 11.21% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.
Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/JPY trading bias.
EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to June 2022) (CHART 5)
EUR/GBP rates just set a fresh yearly high last week, and despite the sharp reversal lower, the pair continues to trade above descending channel resistance dating back to February 2021, suggesting that the bullish breakout remains on track. Momentum indicators remain bullish, with daily MACD trending higher above its signal line, while daily Slow Stochastics have stabilized around their median line. A slow, steady grind towards the 38.2% Fibonacci retracement of the 2020 high/2022 low range at 0.8698 may transpire during the remainder of June.
IG Client Sentiment Index: EUR/GBP Rate Forecast (June 21, 2022) (Chart 6)
EUR/GBP: Retail trader data shows 58.68% of traders are net-long with the ratio of traders long to short at 1.42 to 1. The number of traders net-long is 3.52% higher than yesterday and 19.75% higher from last week, while the number of traders net-short is 5.94% lower than yesterday and 24.01% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bearish contrarian trading bias.
--- Written by Christopher Vecchio, CFA, Senior Strategist
