Talking Points:

- EUR/USD Holds Above 200-Day SMA Ahead of Euro-Zone 1Q GDP Report.

- British Pound Lags Behind Following Dovish BoE; Bearish RSI Trigger Takes Shape.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0926

1.0928

1.0856

65

72

EUR/USD extends the rebound from the weekly low (1.0839) following the slew of mixed data prints coming out of the world’s largest economy, and the pair may stage a larger recovery over the coming days as it breaks the recent series of lower highs & lows.

With the Euro-Zone’s Gross Domestic Product (GDP) report anticipate to show the monetary union expanding an annualized 1.7% in the first-quarter of 2017, a positive development may heighten the appeal of the single-currency as it puts increased pressure on the European Central Bank (ECB) to move away from its easing-cycle. However, the recent comments from ECB President Mario Draghi suggest the Governing Council is in no rush to remove its highly accommodative policy stance as the central bank struggles to achieve its one and only mandate for price stability, and ECB officials may increase their efforts to ward off a taper tantrum as ‘underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend.

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Nevertheless, the near-term outlook for EUR/USD remains constructive as it continues to trade above the 200-Day SMA (1.0831), with the pair at risk of testing the monthly high (1.0916) as it fails to fill-in the gap following the first round of the French election; there appears to be a shift in market behavior as the euro-dollar exchange rate breaks out of the downward trend carried over from 2016, while the Relative Strength Index (RSI) retains the bullish formation from earlier this year.
  • With that said, topside targets remain favored going into the week ahead, with the first hurdle coming in around .1020 (50% expansion) followed by the Fibonacci overlap around 1.1140 (23.6% expansion) to 1.1160 (38.2% expansion).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2891

1.2900

1.2845

5

55

The British Pound lags behind most of its major counterparts following the Bank of England’s (BoE) ‘Super Thursday’ event, and the GBP/USD exchange rate stands at risk for further losses as it starts to carve a string of lower highs & lows.

Nevertheless, the slew of key data prints coming out of the U.K. may heighten the appeal of sterling as the core Consumer Price Index (CPI) is expected to increase an annualized 2.2% in April, while Retail Sales are projected to increase 1.0% during the same period. With that said, a batch of positive developments may curb the recent weakness in GBP/USD as it encourages BoE officials to soften its dovish tone for monetary policy, but the relief rally appears to be getting exhausted as the pair fails to clear the monthly opening range.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD stands at risk for further losses as it pulls back from the monthly high (1.2988), while the momentum indicator fails to preserve the upward trend carried over from March; the bearish RSI trigger may continue to unfold in the week ahead as the oscillator appears to be diverging with price and falls back from overbought territory.
  • In turn, a close below 1.2860 (61.8% retracement) may open up the former-resistance zone around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), with the next downside region of interest coming in around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement).

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IG Sentiment
  • Retail trader data shows 40.2% of traders are net-long EUR/USD with the ratio of traders short to long at 1.49 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06407; price has moved 2.6% higher since then. The number of traders net-long is 14.9% lower than yesterday and 37.3% higher from last week, while the number of traders net-short is 5.0% lower than yesterday and 11.2% lower from last week.
  • Retail trader data shows 41.2% of traders are net-long GBP/USD with the ratio of traders short to long at 1.43 to 1. In fact, traders have remained net-short since April 12 when GBP/USD traded near 1.23716; price has moved 4.2% higher since then. The number of traders net-long is 1.7% lower than yesterday and 3.9% higher from last week, while the number of traders net-short is 5.9% lower than yesterday and 9.8% lower from last week.

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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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