EUR/USD TALKING POINTS
- Persistent EU inflation pressures support hawkish bets.
- ECB walking a tight rope.
- EUR/USD holds above 1.05 for now.
EURO FUNDAMENTAL BACKDROP
The eurozone core inflation print came in as expected at 3.8% (see calendar below) for the month of May which bolstered euro upside post-release after a negative start to the European trading session. We can expect this to continue to rise as crude oil and natural gas supply continues to be constrained leaving the eurozone in a tricky situation. The euro is by no means reversing the longer-term downtrend thus heightening inflationary pressures giving the ECB more to think about as it grapples with widening bond spreads and a fading euro.
The economic calendar shifts to the U.S. as we close off the week with eyes on Fed Chair Jerome Powell as well as industrial production numbers which could have some sway on the EUR/USD pair.
EUR/USD ECONOMIC CALENDAR
Source: DailyFX economic calendar
Leading up to today’s core inflation read, the euro fed off global currency buying against the dollar after expectations around worldwide tightening mushroomed and the greenback retreated. This being said, my medium/long-term view remains favorable to the dollar with the eurozone facing far greater challenges (uncertain) relative to the United States.
Bond spreads are of concern for the European Central Bank (ECB) and was reiterated last night by President Christine Lagarde stating that there are plans in place to place limits on bond spreads to avoid further fears in the region.
TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Price action on the daily EUR/USD chart shows bulls barely pulling out of what could have been a significant decline lower if the 1.0340 support handle was breached. While the euro has had some support from external factors, should prices reach the key area of confluence around trendline resistance (black), I would be looking for upcoming downside as central bank divergence remains heavily skewed towards the Fed and subsequently the dollar.
Resistance levels:
- Trendline resistance (black)
- 1.0601
- 50-day EMA (blue)
- 20-day EMA (purple)
Support levels:
- 1.0500
- 1.0340
IG CLIENT SENTIMENT DATA: MIXED
IGCS shows retail traders are currently LONG on EUR/USD, with 69% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however due to recent changes in long and short positioning we arrive at a mixed bias.
| Change in | Longs | Shorts | OI |
| Daily | 13% | 4% | 10% |
| Weekly | 16% | -19% | 1% |
Contact and follow Warren on Twitter: @WVenketas
