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EUR/USD to Mount Near-Term Recover on Sticky CPI, Wait-and-See ECB

EUR/USD to Mount Near-Term Recover on Sticky CPI, Wait-and-See ECB

David Song, Strategist

Talking Points:

- EUR/USD to Mount Near-Term Recover on Sticky CPI, Wait-and-See ECB.

- USDOLLAR Pares Losses Amid Sticky Inflation- Chair Yellen in Focus.

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EUR/USD

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may mount a near-term recovery going into June as the pair appears to be breaking out of the downward trending channel from earlier this month, while the European Central Bank (ECB) is widely anticipated to retain its current policy at the next policy meeting on June 2.
  • With the Euro-Zone’s Core Consumer Price Index (CPI) projected to increase an annualized 0.8% following the 0.7% expansion in April, sticky price growth in the monetary union may spark a bullish reaction in the single-currency as market participants scale back bets for additional ECB support.
  • May see the bullish trend carried over from the end of 2015 reassert itself over the coming days amid the failure to break/close below near-term support around 1.1090 (50% retracement) to 1.1110 (50% retracement), with the first topside hurdle coming in around 1.1210 (61.8% retracement) to 1.1230 (38.2% retracement) followed by 1.1270 (38.2% retracement) to 1.1290 (23.6% retracement).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd has flipped net-long EUR/USD going into the end of May after being net-short since early March.
  • The ratio currently sits at +1.05 as 51% of traders are long, with long positions 5.0% higher from the previous week even as open interest stands 1.8% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11964.9311971.3411931.320.22100.82%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the preliminary U.S. Gross Domestic Product (GDP) report fell short of market expectations, the USDOLLAR pares the decline from earlier this week as the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, expands an annualized 2.1% to mark the highest reading since the first three-months of 2012.
  • With Fed Chair Janet Yellen scheduled to speak later this afternoon, fresh comments from the central bank head may spark increased volatility going into the holiday weekend as Fed Funds Futures continue to price less than 40% probability for a June rate-hike; will also keep a close eye on the news wires in the week ahead as St Louis Fed President James Bullard, Fed Governor Jerome Powell, Dallas Fed President Robert Kaplan, Chicago Fed President Charles Evans and Fed Governor Lael Brainard scheduled to speak over the days ahead.
  • Another unsuccessful attempt to break/close above the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) may keep the USDOLLAR within a narrow range, with the first downside region of interest coming in around 11,898 (50% retracement), followed by 11,836 (61.8% retracement) to 11,843 (38.2% retracement).
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Read More:

USD/CHF Rally? It Just MAY

Gold Bulls Look to CPI, Fed Minutes for Solace

DailyFX Technical Focus: Short Term S&P and Gold Analysis

USD/CAD Technical Analysis: Time For Bulls To Prove Their Worth

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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