EUR/USD Likely to Fall From Three Year Highs
EUR Talking Points
- Renewed EUR strength will not help the central bank’s stated aim of boosting inflation to target.
- The US dollar may get a boost from Friday’s US Q4 GDP release.
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ECB Rhetoric May Temper EUR/USD Rise in the Short-Term
The recent rally in the single currency against the US dollar will be causing ECB President Mario Draghi a few headaches as a strong EUR is set to keep inflationary pressures in the single-bloc lower for longer. And Draghi may need to outline a slightly more dovish ECB stance at today’s monetary policy announcement and subsequent press conference to take the heat out of the single-currency. Expectations that the ECB may outline the timetable for the reduction/ending of the bond buying program (QE) may not be met, with Draghi likely to re-confirm that there will be no sudden end to QE when the current program ends in September.
Euro-Zone inflation slipped lower in the final month of 2017. December Euro-Zone CPI fell to 1.4% from a prior 1.5%, once again missing the ECB’s mandate of close to or around 2%, while core inflation was 1%.
EUR/USD may also come under selling pressure at the end of the week with the release of US Q4 GDP. Current expectations are centered on 3% and any beat on the upside may see US dollar shorts covered ahead of the weekend and next Wednesday’s – January 31 – FOMC policy decision.
A look at the daily EUR/USD chart also shows that the stochastic indicator is looking to turn lower from its current 80+ level, a potentially bearish technical trigger.
EUR/USD Price Chart One Daily Timeframe (July 30, 2017- January 25, 2018)
EUR/USD Bullish Run May be Coming to an End
IG Client Sentiment data show 33.2% of traders are net-long EURUSD with the ratio of traders short to long at 2.01 to 1. The number of traders net-long is 6.8% lower than yesterday and 1.6% higher from last week, while the number of traders net-short is 12.9% lower than yesterday and 2.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse lower despite the fact traders remain net-short.
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--- Written by Nick Cawley, Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.