EUR/USD Latest: CoT Report Confirms Overcrowded EUR/USD Positioning
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EUR/USD News and Analysis
- German inflation meets expectations an central bank chatter returns
- Levels of interest to gauge extent of EUR/USD pullback
- Euro long positioning becomes overcrowded according to latest CoT data
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
German Inflation Meets Expectations and Central Bank Chatter Returns
German inflation printed in line with expectations this morning, resulting in a move higher in EUR/USD, which has retraced somewhat a the time of writing, around 9am UK time.
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Comments from the European Central Bank’s (ECB) Kazimir, Nagel, Schnabel and dove, Stournaras have added to the debate over the last couple of days. As these things tend to go, those on the more hawkish end of the spectrum like Nagel and Schnabel have expressed that more needs to be done to bring inflation down and that rate cuts are unlikely in the foreseeable future. ECB dove, Stournaras chose to focus on a different message stating that rate hikes will come to an end in 2023. Nevertheless, markets continue to take on board what is being said by influential policy setters.
EUR/USD Technical Levels of Interest
After hinting at a slowdown in bullish momentum around the 1.1075 level, EUR/USD let off some steam as the ECB-inspired pullback ensued. Last week Thursday the ECB decided to hike rates in line with consensus (25 bps) which had already been priced in, leading to some profit taking around relatively elevated levels for the pair.
Since then, the pullback has extended beyond the first level of support at 1.0965, hinting at a deeper retracement towards 1,0910. Today’s daily close will be helpful in analysing the likelihood of a bullish continuation (close above 1.0965) or a deeper pullback (close below 1.0965). Support lies at 1.0910 with resistance at 1.1075. Something else to keep an eye on is the notable decline in volatility expressed via the ATR indicator, which continues to trend lower after the banking turmoil in march. The RSI has headed towards middle ground, opening up the possibility of another attempt to retest the yearly high. A breakdown of 1.0910 with subsequent momentum would bring into question the longevity of the current bull trend, warranting further assessment.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
Another reason why the pullback around the ECB rate decision had gained momentum was due to the long EUR/USD setup becoming extremely overcrowded. The chart below highlights the divergence between long and short positioning within the ‘smart money’ segment of speculative money managers. Long positioning massively outweighs shorts, opening the door to the current retracement playing out currently. As the market rises, EUR/USD bears find more value for potential short trades, however, until there is a confirmed trend reversal, the most constructive approach is in the direction of the prevailing trend.
Commitments of Traders Report for Euro
Source: Refinitiv, prepared by Richard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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