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Euro Update: Economic Sentiment Disappoints, German CPI Later

Euro Update: Economic Sentiment Disappoints, German CPI Later

Richard Snow, Analyst
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EUR/USD News and Analysis

  • EU economic sentiment breaks below 100 as gas shortages start affecting German industry
  • EUR/USD technical levels ahead of US Q2 GDP and EU inflation data
  • IG Client Sentiment reveals long-short divergence
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EU Economic Sentiment Breaks Below 100

EU economic sentiment for July dropped below 100 as Euro fundamentals weigh on the region. Russia communicated that it was reducing already reduced gas flows earlier this week citing a technical issue. Since then, the world’s largest chemical company ‘BASF’ announced it would be cutting output in September, with further cuts likely.

Consumer confidence dropped further to -27 from -23.8

Industrial sentiment also dropped to 3.5 from 7.

EU Economic Sentiment

Next up on the docket is the US GDP for Q2 which is forecast to narrowly escape a recession. Later we have German CPI which could inform EU inflation tomorrow. Tomorrow, US PCE inflation data is unlikely to have a massive effect on the market given the sizeable rate hike yesterday. EU inflation and Q2 GDP data is up on Friday.

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EUR/USD Technical Levels Ahead of EU CPI and US GDP

After yesterday’s Fed rate hike of 75 bps which was perceived by the market as bearish, EUR/USD appears to be giving up yesterday’s gains. Markets seemed to focus on the fact that Jerome Powell admitted to a slower potential pace of hiking despite mentioning that the Fed aren’t done hiking.

Volatility appears set to continue into the end of the week with a whole host of high importance economic data still to come. Price action also trades within a range between 1.0280 and 1.0100.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

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IG Client Sentiment Shows Long-Short Convergence

Client sentiment is narrowing between net-longs and net-shorts, making future insights less clear. Sentiment is usually most insightful when a large discrepancy exists between shorts and longs with overall sentiment in the opposite direction of the trend.

EUR/USD: Retail trader data shows 57.46% of traders are net-long with the ratio of traders long to short at 1.35 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 15.26% lower than yesterday and 7.80% lower from last week, while the number of traders net-short is 9.88% higher than yesterday and 16.24% higher from last week.

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.

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--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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