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EUR/USD Hands Back Some Gains, German CPI Data In Focus

EUR/USD Hands Back Some Gains, German CPI Data In Focus

David Cottle, Analyst
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EUR/USD Analysis, Prices, and Charts

  • EUR/USD fades after two days of clear gains
  • There doesn’t seem to be much news behind this, the market may be a little over-extended
  • German inflation data due Thursday may liven things up
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The Euro pulled back a little against the United States Dollar in Wednesday’s European morning, relinquishing some of the strong gains made in the previous two days.

EUR/USD looks quite solidly underpinned by expectations that the Federal Reserve won’t raise borrowing costs by much more this year and also by signs that a more general contagion won’t follow parts of the banking sector’s well-publicized struggles with a higher interest-rate environment.

The pair has been rising steadily since late February, largely thanks to the thesis that the European Central Bank still has more to do than the Fed in terms of tighter monetary policy. Indeed, gains since then have been an extension of the broader rise seen since September 2022. Wednesday’s relative torpor could simply be due to a lack of any clear, exciting trading cues in the European session, or a little hunkering down before key German inflation numbers due for release on Thursday.

Obviously these will have a clear bearing on likely ECB action ahead, Germany being the Eurozone’s powerhouse and much its largest national economy. Germany will release official Consumer Price Index numbers for its various states, or lander, before letting markets see the big one, the national CPI, at 1200GMT. This is forecast to have risen by 7.3% on the year last month. If it does, it will underline central banks’ broader dilemma in which, for sure, inflation appears well off its recent highs, but at the same time hugely above the 2% or so targeted by most of them.

An as-expected outcome will do little to alter the view that the ECB’s work is not yet done, and will likely offer EUR/USD further support.

EUR/USD Technical Analysis

Chart Compiled Using TradingView

The single currency has broken back above the first Fibonacci retracement of its rise up to early February’s ten-month highs from the lows of November 2. That came in at 1.07255, a point which gave way after a fight on February 15 and was regained on March 21. That region now acts as support again and Euro bulls have already repelled one challenge to it this week.

If they can consolidate themselves above the line, which they show every sign of doing, then those February peaks will come back in to focus again in the medium term. The pair is likely to face some profit-taking on the way up there, however, and there are some signs that this market may be a little over-extended.

Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 4% 7% 5%
Weekly 7% -14% -2%
What does it mean for price action?
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IG’s own sentiment data find EUR/USD suffering from rather narrow positioning, with a modest bias toward being short at current levels. This is quite understandable given the rise seen in March, and the clear risk that a double top formation is appearing on the daily chart, which might cap it not far from current levels.

Still, if the fundamental picture remains supportive, the Euro could buck these potential difficulties. But the uncommitted may now want to wait until month-end to get a clearer picture of market sentiment.

---By David Cottle for DailyFX

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