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EUR/USD Contained Ahead of NFP but Remains Sensitive to ‘Hawkish/Dovish’ Narrative Swings

EUR/USD Contained Ahead of NFP but Remains Sensitive to ‘Hawkish/Dovish’ Narrative Swings

Richard Snow, Analyst

EUR/USD Talking Points:

  • EUR/USD calmer ahead of US NFP data and Euro sentiment data next week
  • The currency pair looks to test key resistance (prior support)
  • IG Client Sentiment ‘mixed’ despite significant net long positioning
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EUR/USD Ahead of Non-Farm Payrolls and Euro Sentiment Survey Data

The Euro received a much needed bounce last Friday as global financial markets wrestled with news of a new coronavirus variant which we have now come to know as Omicron. The higher move in the pair was more a case of dollar weakness than Euro strength as rates markets priced in a more conservative timeline for US rate hikes next year. Fast forward a few days and early reports suggest that Omicron patients have been experiencing mild symptoms although the World Health Organization cautioned that more time is needed to know this for sure.

While the Euro may benefit in the short term from inconsistent dollar movements, it is expected to remain under pressure heading into 2022 as a growing number of European Central Bank governors consider life after its Pandemic Emergency Purchase Program (PEPP) – the Eurozone’s stimulus program in response to Covid-19. Policymakers will decide whether to end PEPP in March and to what extent they will purchase debt thereafter. Complicating the matter is the not so small issue of inflation which is heating up the Eurozone via both the headline and core inflation, proving that non-energy related sectors are experiencing persistent inflationary pressure. Core inflation printed at 2.6% last week which exceeds the central bank’s target of 2%.

Major risk events ahead include US non-farm payroll data on Friday, ECB President Christine Lagarde’s speech tomorrow and the ZEW economic sentiment index next week:

econ calendar

For information on major event risk, take a look at DailyFX’s economic calendar

EUR/USD Technical Analysis

The daily chart clearly shows the almost immediate pull back towards the descending trendline (prior support) after breaking down in mid-November. For now 1.1350 serves as a temporary yardstick for a continued move higher however, the historically significant 1.1400 level has edged ever closer and could come into play depending on data and/or Omicron surprises.

EUR/USD Daily Chart

EURUSD daily

Chart prepared by Richard Snow, IG

The weekly chart helps frame the recent move with regard to historical levels. 1.400 remains a key level for continued upside but 1.1168 currently supports the currency pair. A move below this level becomes more realistic should we receive any concrete, scientific reassurances regarding the transmission and severity of Omicron from the WHO.

EUR/USD Weekly Chart

EURUSD weekly chart

Chart prepared by Richard Snow, IG

EUR/USD ‘mixed’ Despite Significant Net-Long Positioning

IGsentiment
  • EUR/USD: Retail trader data shows 66.39% of traders are net-long with the ratio of traders long to short at 1.98 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
  • The number of traders net-long is 4.10% higher than yesterday and 16.77% lower from last week, while the number of traders net-short is 0.45% lower than yesterday and 10.31% higher from last week.
  • Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

Written by Richard Snow, Analyst

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

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