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EUR/USD Rallies as ECB Hints at QE Program Adjustment in Autumn

EUR/USD Rallies as ECB Hints at QE Program Adjustment in Autumn

David Song, Strategist

Talking Points:

-EUR/USD Rallies as ECB Hints at QE Program Adjustment in Autumn.

- GBP/USD Initiates Lower-Highs as Initial Brexit Negotiations Go Nowhere.

-DailyFX 3Q Forecasts Are Now Available.

DailyFX Table

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1642

1.1658

1.1479

127

179

EUR/USD rallies to fresh 2017-highs even as the European Central Bank (ECB) preserves the zero-interest rate policy (ZIRP), and the shift in market behavior may continue to unfold over the coming months as the Governing Council hints at a possible adjustment for the quantitative easing (QE) program.

With the asset-purchases scheduled to expire in December, the ECB may continue to change its tune in the second-half of the year as President Mario Draghi briefly notes the central bank will discuss the fate of the Public Sector Purchase Programme (PSPP) in the autumn. The market reaction suggests there’s growing speculation the Governing Council will gradually wind down the asset-purchases over the coming months as central bank officials note ‘incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead.’

In turn, the resilience in the euro-dollar exchange rate may gather pace over the near-term as the ECB appears to be on course to alter the forward-guidance for monetary policy.

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Topside targets remain in focus as EUR/USD trades above the former resistance-zone around 1.1480 (78.6% expansion) and clears the 2016-high (1.1616); at the same time, the Relative Strength Index (RSI) appears to be making a more meaningful attempt to push into overbought territory.
  • A break/close above the 1.1670 (78.6% expansion) hurdle exposes the August 2015-high (1.1714) followed by the Fibonacci overlap around 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion).

Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2990

1.3033

1.2933

32

100

The British Pound struggles to hold its ground despite the 0.9% expansion in U.K. Retail Sales, with GBP/USD at risk of giving back the advance from the June-low (1.2589) as there appears to be renewed concern of a ‘hard Brexit.’

U.K. Trade Secretary Liam Fox argues Great Britain ‘can of course survive with no deal’ as initial talks with the European Union (EU) bear little fruit, but the threat of losing access to the single market may continue to tame the longer-term outlook for the pound-dollar exchange rate as it encourages the Bank of England (BoE) to carry the record-low interest rate into 2018. With the 2Q Gross Domestic Product (GDP) anticipated to show a slowdown in the growth rate, the majority of the Monetary Policy Committee (MPC) may once again vote to buy more time at the next meeting on August 3, and Sterling remains at risk of of facing headwinds throughout the second-half of the year as the U.K’s departure from the EU clouds the economic outlook with high uncertainty.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • With the near-term outlook capped by the Fibonacci overlap around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement), downside targets are on the radar as GBP/USD starts to carve a series of lower-highs, with the Relative Strength Index (RSI) highlighting a similar dynamic as it continues to pullback from trendline resistance.
  • A close below 1.2950 (23.6% retracement) opens up the next region of interest around 1.2860 (61.8% retracement) followed by the overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), which sits just below the 100-Day SMA (1.2727).
IG Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 30.8% of traders are net-long EUR/USD with the ratio of traders short to long at 2.24 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06785; price has moved 8.9% higher since then. The percentage of traders net-long is now its highest since June 25 when EUR/USD traded near 1.11954. The number of traders net-long is 1.6% higher than yesterday and 8.9% higher from last week, while the number of traders net-short is 5.4% lower than yesterday and 1.3% higher from last week.
  • Retail trader data shows 44.1% of traders are net-long GBP/USD with the ratio of traders short to long at 1.27 to 1. In fact, traders have remained net-short since June 23 when GBP/USD traded near 1.26263; price has moved 2.9% higher since then. The number of traders net-long is 2.6% lower than yesterday and 1.0% lower from last week, while the number of traders net-short is 6.3% lower than yesterday and 2.7% 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.

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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