Euro Weekly Forecast – Will the ECB Disappoint the Hawks Next Week?
EUR/USD Price, Chart, and Analysis
The European Central Bank policy decision, and press conference, next week look set to be a particularly testing meeting for ECB President Lagarde as she tries to find a policy balance to dampen down rampant inflation while propping up a weak growth outlook. And this comes at a time when other major central banks are already or are fully prepared to, hike interest rates in ever-increasing increments. The next two Federal Reserve hikes will be in 50 basis point clips, the Next Bank of Canada hike likely the same, while next week’s Reserve Bank of New Zealand’s meeting will be a close run thing between 25 bps and 50 bps. It looks increasingly likely that 50 basis point rate hikes will become commonplace for major central banks this year.
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While other major central banks are already tightening monetary policy, the ECB has the unenviable job of trying to stem runaway inflation while the economy begins to stagnate. The market currently expects the ECB to increase interest rates by 60 basis points this year, a start, but if inflation is to be anchored then the ECB will have to signal that they are willing to go hard, early. This will be a hard sell to the market while Euro Area growth weakens. There will come a time when markets look through central bank tough talk and wait for action. In this scenario, the Euro will come under a lot of pressure. Add in the upcoming French Election and the ongoing crisis in Ukraine and the single currency is likely to stay volatile and fall further.
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The daily EUR/USD chart shows the pair trading just above a two-year low, a level that looks set to be retested in the near future. Below here the double low just under 1.0650 becomes the nest area of support.
EUR/USD Weekly Price Chart – April 8, 2022
Retail trader data show73.98% of traders are net-long with the ratio of traders long to short at 2.84 to 1. The number of traders net-long is 5.24% higher than yesterday and 41.15% higher from last week, while the number of traders net-short is 6.82% lower than yesterday and 22.95% lower 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.Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.
What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.