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EUR/USD on Track to Clear Monthly Opening Range Ahead of ECB Meeting

EUR/USD on Track to Clear Monthly Opening Range Ahead of ECB Meeting

David Song, Strategist

EUR/USD Rate Talking Points

EUR/USD trades above the 50-Day SMA (0.9893) as it carves a series of higher highs and lows, and the exchange rate may stage a larger recovery ahead of the European Central Bank (ECB) meeting if it clears the opening range for October.

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EUR/USD on Track to Threaten Monthly Opening Range Ahead of ECB Meeting

EUR/USD approaches the monthly high (1.0000) as the Greenback weakens against all of its major counterparts, and a break above the October opening range may push the exchange rate towards the September high (1.0198) as the exchange rate appears to be reversing course following the failed attempt to test the yearly low (0.9536).

Looking ahead, the ECB meeting may keep EUR/USD afloat as the Governing Council is expected to deliver another 75bp rate hike, and President Christine Lagarde and Co. may continue to prepare Euro Area households and businesses for higher interest rates as the central bank acknowledges that “is likely to stay above our target for an extended period.”

However, the weakening outlook for growth may put pressure on the ECB to winddown its hiking-cycle as the Euro Area is expected to “stagnate later in the year and in the first quarter of 2023,” and a dovish rate hike may ultimately drag on EUR/USD as the Federal Reserve pursues a restrictive policy.

Until then, EUR/USD may continue to appreciate as it carves a series of higher highs and lows, and a further advance in the exchange rate may fuel the recent flip in recent flip in retail sentiment like the behavior seen earlier this month.

The IG Client Sentiment (IGCS) report shows 48.48% of traders are currently net-long EUR/USD, with the ratio of traders short to long standing at 1.06 to 1.

The number of traders net-long is 6.63% lower than yesterday and 12.19% lower from last week, while the number of traders net-short is 8.60% higher than yesterday and 8.30% higher from last week. The decline in net-long position comes as EUR/USD trades to fresh weekly high (0.9977), while the rise in net-short interest has fueled the flip in retail sentiment as 56.55% of traders were net-long the pair last week.

With that said, EUR/USD may attempt to retrace the decline from the September high (1.0198) as if it clears the opening range for October, but a dovish ECB rate hike may drag on the exchange rate as the central bank shows little interest in carrying out a restrictive policy.

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EUR/USD Rate Daily Chart

Source: Trading View

  • EUR/USD trades above the 50-Day SMA (0.9893) as it carves a series of higher highs and lows, and the exchange rate may no longer respond to the negative slope in the moving average as it appears to be reversing course following the failed attempt to test the yearly low (0.9536).
  • In turn, a move above the monthly high (1.000) may push EUR/USD towards 1.0070 (161.8% expansion), with a break above the September high (1.0198) bringing the 1.0220 (161.8% expansion) area on the radar.
  • However, failure to clear the opening range for October may push EUR/USD back below the 0.9910 (78.6% retracement) to 0.9950 (50% expansion) region, with a move below the monthly low (0.9632) bringing the yearly low (0.9536) back on the radar.

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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