EUR/USD Rate Talking Points
EUR/USD continues to hold above the December 2002 low (0.9859) as it trades within last week’s range, and fresh data prints coming out of the Euro Area may generate a rebound in the exchange rate as the Consumer Price Index (CPI) is anticipated to show higher inflation.
EUR/USD Rate Outlook: Euro Area CPI Report in Focus
EUR/USD appears to be bouncing back ahead of the monthly low (0.9900) as it attempts to retrace the decline following the speech by Federal Reserve Chairman Jerome Powell, and the European Central Bank (ECB) may come under pressure to carry out a similar approach as Chief Economist Philip Lane reveals that the “upcoming September monetary policy meeting will be the start of a new phase.”
As a result, the update to the Euro Area CPI may spark speculation for larger ECB rate hikes as the core rate of inflation is expected to increase to 4.1% in August from 4.0% per annum the month prior, and evidence of rising price pressures may lead to a near-term rebound in EUR/USD as Governing Council member Lane insists that “this new phase will consist of a meeting-by-meeting (MBM) approach to setting interest rates.”
In a recent speech, Lane argues that “a steady pace (that is neither too slow nor too fast) in closing the gap to the terminal rate is important for several reasons,” and it remains to be seen if the ECB will change its tone at the next meeting on September 8 as “the scale and timeline of rate adjustment will be determined by the evolution of the terminal rate and the appropriate speed in closing the gap between the current rate and the terminal rate.”
Until then, an uptick in the Euro Area CPI may keep EUR/USD above the monthly low (0.9900) as it encourages the ECB to normalize monetary policy at a faster pace, and a rebound in the exchange rate may help to alleviate the tilt in retail sentiment like the behavior seen earlier this year.
The IG Client Sentiment report shows 63.01% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.70 to 1.
The number of traders net-long is 4.10% lower than yesterday and 15.68% lower from last week, while the number of traders net-short is 38.96% higher than yesterday and 50.22% higher from last week. The decline in net-long interest has alleviated the crowding behavior as 72.35% of traders were net-long EUR/USD last week, while the jump in net-short position comes as the exchange rate trades within last week’s range.
With that said, EUR/USD may stage a rebound over the coming days amid the failed attempt to test the December 2002 low (0.9859), but the exchange rate may continue to track the negative slope in the 50-Day SMA (1.0204) to largely mirror the price action seen in June.
EUR/USD Rate Daily Chart
Source: Trading View
- EUR/USD appears to be stuck in a narrow range following the failed attempt to test the December 2002 low (0.9859), with the Relative Strength Index (RSI) raising the scope for a near-term rebound in the exchange rate as it holds above oversold territory.
- Need a close above the 1.0070 (161.8% expansion) region to bring the 1.0220 (161.8% expansion) area back on the radar, but the exchange rate may continue to track the negative slope in the 50-Day SMA (1.0204) to largely mirror the price action from June.
- At the same time, lack of momentum to close above the 1.0070 (161.8% expansion) region may push EUR/USD back towards the Fibonacci overlap around 0.9910 (78.6% retracement) to 0.9950 (50% expansion), with a break below the December 2002 low (0.9859) opening up the October 2002 low (0.9685).
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
