EUR/USD Latest – Struggling to Hold 1.0500 as the Fed Policy Decision Nears

EUR/USD Price, Chart, and Analysis

• 10-year German bond yields back above 1% for the first time in eight years.
• An uber-hawkish Fed will see EUR/USD tumble further.

A testing time ahead for the EUR/USD traders as the US Federal Reserve kicks off its two-day monetary policy meeting where the central bank is expected to hike interest rates by 50 basis points and outline the mechanics, and timing of their quantitative tightening program. The pair currently trades around 50 pips above last week’s 1.0470 low, a level last seen in January 2017.

Monday’s S&P Global Eurozone Manufacturing PMI laid bare the problems facing the single block. The Manufacturing PMI made a 15-month low as ‘output came to a near standstill across the Eurozone in April, with production merely edging higher at the slowest rate since June 2020’, according to Chris Williamson, the chief business economist at the data compiler. Commenting on Monday’s figures, Mr. Williamson concluded, ‘In short, the Eurozone Manufacturing sector looks set for a difficult period of falling production and surging prices’.

The 10-year German government bond (Bund) today traded with a 1% yield for the first time in nearly eight years as expectations that the European Central Bank (ECB) will need to increase rates continue to grow. Current market expectations imply nearly three 25 basis points hikes are likely this year to counter increasing prices pressures across the Euro Area. Annual inflation in the single block made a fresh all-time high in April of 7.5%, pushed higher by rampant energy prices. Excluding energy, inflation rose by 4.2%, over twice the central bank’s 2% target rate.

The daily EUR/USD chart highlights the pair’s current weakness with support on either side of 1.0500 coming under constant pressure. The battle here between buyers and sellers will be worth watching, especially after the Fed’s decision and commentary tomorrow, and will define the short- to medium-term outlook for the Euro. At the moment the chart suggests lower prices but a strong defense of this area could see EUR/USD stage a relief rally back to 1.0640. One thing that remains constant is volatility and this is expected to increase further this week.

EUR/USD Daily Price Chart – May 3, 2022

Retail trader data show 77.04% of traders are net-long with the ratio of traders long to short at 3.36 to 1. The number of traders net-long is 3.10% higher than yesterday and 2.61% higher from last week, while the number of traders net-short is 8.55% higher than yesterday and 4.77% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on the EURO – 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.