EUR/USD ANALYSIS
- ECB gives support to Euro.
- China aids dollar weakness.
EURO FUNDAMENTAL BACKDROP
The Euro climbed in early trading on Monday after the ECB’s President Christine Lagarde announce med that “July is the likely lift-off date for ECB rates”. Recent concerns by ECB officials around Euro stability have added to EUR strength because a weaker Euro can exacerbate the already rampant inflation.
Money markets are becoming increasingly hawkish in their pricing of ECB rate hikes which is up almost 10bps to 105bps for 2022 since last week (see table below):
ECB INTEREST RATE PROBABILITIES
Source: Refinitiv
From the U.S. dollar perspective, a reduction in China’s lockdowns in Shanghai have taken away support for the greenback along with markets view on an exhaustive rally on the back of an aggressive Fed. We look forward to the week ahead which is dominated by US events however there are several ECB speeches scattered throughout.
Source: DailyFX economic calendar
TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
EUR/USD price action now looks to retest the 1.0600 psychological level since early May. I will be looking for a definitive candle close above this level before looking at additional Euro gains. We must remember that the Eurozone is in a poor growth environment and could be aggravated by the Russia/Ukraine war along with the proposed Russian oil embargo. The bearish trend could easily return but for now we are seeing some respite for the Euro however I do favor dollar strength over the Euro medium/long-term.
Resistance levels:
Support levels:
- 1.0600
- 20-day EMA (purple)
- 1.0400
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows retail traders are currently LONG on EUR/USD, with 68% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, recent changes in long and short positioning result in an upside bias.
| Change in | Longs | Shorts | OI |
| Daily | 0% | -2% | -1% |
| Weekly | -13% | 7% | -7% |
Contact and follow Warren on Twitter: @WVenketas
