EUR/USD ANALYSIS
- Euro may no longer be the flavor of the month!
- Spotlight on ECB’s Lagarde later today.
EURO FUNDAMENTAL BACKDROP
The Euro is trading lower in early trading this morning after last weeks stellar performance on the back of a perceived ‘hawkish’ pivot by the ECB. Cold water was poured on this upside rally when the US jobs report significantly beat estimates reinforcing the tight labor market and adding pressure on the Federal Reserve to hike rates.
Inflationary pressure remains elevated across the globe with energy prices on the up. This is particularly emphasized in Europe as ties to Russia for natural gas is high and with tensions around a Ukraine invasion persisting, European gas prices have caused a large proportion of the current inflation dynamic.
Markets are currently pricing in two rate hikes for 2022 by the ECB however, this may be a slight overreaction post-ECB. A Russian retreat may favor the dovish argument by the ECB and favor dollar upside as the Fed remains firmly hawkish in its current stance. It is important to remember that the situation in the US and Europe are completely different and markets cannot paint expectations with the same brush.
ECB INTEREST RATE PROBABILITIES
Source: Refinitiv
Focus today will be on ECB President Christine Lagarde’s speech where we may see an attempt to make alterations to last week’s press conference comments. Over the weekend, President of the Dutch Central Bank Klaas Knot backed a swift end to QE as soon as possible while looking at interest rate hikes in Q4.
Source: DailyFX Economic Calendar
TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
From a technical standpoint, there is still room for further upside but I believe this could be capped around the 1.1500 psychological resistance zone. Markets are likely to settle between 1.1300 – 1.1400.
Resistance levels:
- 1.1500
Support levels:
- 1.1400/100-day EMA
- 50-day EMA/20-day EMA
- 1.1300
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows retail traders are currently short on EUR/USD, with 63% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in an upside bias.
| Change in | Longs | Shorts | OI |
| Daily | -6% | -8% | -6% |
| Weekly | 8% | -15% | -2% |
Contact and follow Warren on Twitter: @WVenketas
