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EUR/USD Outlook Mired by Bets for ECB Adjustment

EUR/USD Outlook Mired by Bets for ECB Adjustment

2016-09-02 17:15:00
David Song, Strategist
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Talking Points:

- EUR/USD Outlook Mired by Bets for ECB Adjustment; Disappointment on Tap?

- USDOLLAR Risks Further Losses as Slowing Job/Wage Growth Drags on September Expectations.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

EUR/USD

EUR/USD Daily Chart

Chart - Created by David Song

  • Following the kneejerk reaction to the weaker-than-expected U.S. Non-Farm Payrolls (NFP) report, the near-term pullback in EUR/USD may gather pace in the week ahead amid growing speculation for the European Central Bank (ECB) to further adjust its non-standard measures and extend the duration of its quantitative-easing (QE) program.
  • Failure to retain the bullish patterns from the end of July casts a near-term bearish outlook for EUR/USD, but the single-currency may face a similar reaction to the ECB’s March 10 interest-rate decision, where the exchange rate snapped back from a low of 1.0821 to end the day at 1.1176, should the Governing Council fail to meet market expectations.
  • Failure to hold/close above 1.1220 (61.8% retracement) may generate range-bound conditions going into the first full-week of September, with initial support coming in around 1.1110 (50% retracement), which sits just below the 200-Day SMA (1.1120).
EUR/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short EUR/USD since July 27, with the ratio hitting a 2016-extreme back in May as it slipped to -2.67.
  • The ratio currently sits at -1.25 as 45% of traders are long, while short positions are 19.8% lower from the previous, with open interest flat against 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):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

US Dollar Index

11973.80

11991.02

11921.08

0.07

129.40%

EUR/USD Outlook Mired by Bets for ECB AdjustmentEUR/USD Daily Chart

Chart - Created by David Song

  • Despite the sharp rebound ahead of the holiday weekend, the USDOLLAR continues to carve a series of lower highs & lows, with the greenback at risk at facing near-term headwinds as the 151K expansion in U.S. Non-Farm Payrolls (NFP) accompanied by the larger-than-expected slowdown in household earnings dampens bets for a September Fed rate-hike.
  • The September 21 interest-rate decision may reveal a growing dissent within the Federal Open Market Committee (FOMC) as 2016 voting-member Loretta Mester argues that there’s a ‘pretty compelling’ case for higher borrowing-costs, but the central bank may continue to reiterate ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low’ as Chair Janet Yellen appears to be in no rush to further normalize monetary policy.
  • Need a closing price below 12,049 (78.6% retracement) to 12,064 (61.8% retracement) to favor a further decline in the USDOLLAR, with the next downside hurdle coming in around 11,898 (50% retracement) to 11,914 (38.2% retracement).
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Read More:

S&P 500: Yellen Sparks Volatility, Market Starts Week at Pivotal Area

USD/JPY Technical Analysis: Implied Vol Shows Trader’s Nerves

EUR/JPY Technical Analysis: Sticking to the Range

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

--- 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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