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EUR/USD Slumps as COVID-19 Resurgence Roils the Euro Ahead of the ECB Rate Decision

EUR/USD Slumps as COVID-19 Resurgence Roils the Euro Ahead of the ECB Rate Decision

Nick Cawley, Senior Strategist

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EUR/USD Price, News and Analysis:

  • Germany and France may push for a new lockdown.
  • ECB policy decisions will be shaped by the renewed coronavirus outbreak
  • IG trader sentiment hints at lower prices.
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France is considering a new one-month national lockdown if reports are to be believed, while Germany is mulling additional measures – described as ‘lockdown light’ by one newspaper - to prevent the surge of new coronavirus cases across Europe. New cases in both countries, and across Europe, are spiking higher and there are fears that the spread of the virus is becoming impossible to control. A French government spokesman warned that the health system is coming under pressure and that intensive care units could soon hit a ‘level of extreme saturation’ by mid-November.

European equity markets have taken the hit from the increased coronavirus fears over the last few days and now the Euro is starting to wilt against a range of currencies. This new spike in coronavirus cases comes as the latest ECB monetary policy decisions and press conference hove into view tomorrow. The central bank is already under pressure to give the market a further dovish hint at the meeting to help steady the economy, and the latest virus news may force their hand further. While no balance sheet action is expected tomorrow, a clear indication of a further expansion of the PSPP securities lending program in December is becoming more likely.

EUR/USD is back below 1.1800 and is nearing short-term support. The trendline off the late-September double low has held on three occasions and is currently being tested around the 1.1745 level. The pair have also broken below both the 20- and 50-day simple moving averages but have yet to confirm this move. A confirmed break of these moving averages and trend leaves the 1.1680-90 level vulnerable ahead of the late-September double low at 1.1610.

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EUR/USD Bearish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 47% -25% 8%
Weekly 51% -45% -9%
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IG Retail trader data show 33.17% of traders are net-long with the ratio of traders short to long at 2.01 to 1. The number of traders net-long is 2.03% higher than yesterday and 7.61% higher from last week, while the number of traders net-short is 8.35% lower than yesterday and 14.64% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD 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 EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.

What is your view on EUR/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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