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EUR/USD Retail Sentiment Hits Extreme Ahead of Fed, ECB Minutes

EUR/USD Retail Sentiment Hits Extreme Ahead of Fed, ECB Minutes

David Song, Strategist

Talking Points:

- EUR/USD Retail Sentiment Hits Near-Term Extremes Ahead of ECB Minutes.

- USDOLLAR Outlook Mired by Mixed Data; ISM Non-Manufacturing on Tap.

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EUR/USD

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the recent series of higher-lows in EUR/USD, the pair may continue to come off of the 2016 high (1.1437) as the Relative Strength Index (RSI) turns around ahead of overbought territory.
  • The European Central Bank (ECB) meeting minutes may drag on the exchange rate as Governing Council officials continue to endorse a dovish outlook for monetary policy, with chief economist Peter Praet warning that ‘allowing inflation to re-anchor downwards comes with a high risk of credibility losses for the central bank.’
  • Failure to break/close above 1.1420 (23.6% retracement) to 1.1460 (78.6% retracement) raises the risk for a larger pullback in EUR/USD, with the key downside region of interest coming in around 1.1090 (5% retracement) to 1.1110 (50% retracement).
EUR/USD SSI
  • Despite the near-term advance, the DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-short EUR/USD since March 10, with the ratio hitting fresh near-term extremes as it slipped towards -2.50 to mark the lowest reading since August.
  • Retail sentiment remains near the extreme reading, with the ratio currently sitting at -2.33 as 30% of traders are long, while open interest stands 15.1% above the monthly average.

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

11888.91

11918.08

11879.76

-0.05

59.18%

EUR/USD Retail Sentiment Hits Extreme Ahead of Fed, ECB MinutesUSDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR may continue to give back the rebound from March as the ongoing batch of mixed data prints drags on interest-rate expectations; will keep a close eye on the RSI as it preserves the bearish formation from earlier this year.
  • Fresh rhetoric from Minneapolis Fed President Neel Kashkari, Chicago Fed President Charles Evans, Cleveland Fed President Loretta Mester, Dallas Fed President Robert Kaplan, Kansas City Fed Esther George and Chair Janet Yellen may produce near-term headwinds for the greenback as the central bank remains in no rush to normalize monetary policy, but a marked uptick in the ISM Non-Manufacturing survey may spur a near-term rebound in the dollar as it puts increased pressure on the Federal Open Market Committee (FOMC) to implement higher borrowing-costs over the coming months.
  • Nevertheless, the near-term outlook for the USDOLLAR remains tilted to the downside, with a break/close 11,826 (61.8% expansion) to 11,843 (38.2% retracement) raising the risk for a move towards 11,745 (50% retracement) to 11,759 (23.6% retracement).
EUR/USD Retail Sentiment Hits Extreme Ahead of Fed, ECB Minutes

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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