Euro Set to Slide Further Against the US Dollar – Short EUR/USD into Strength
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The European Central Bank is set to start cutting interest rates in June, and that could see the Euro weaken further in the weeks ahead.
Since the end of last year, rate cut expectations in the US have been pared back sharply, to such an extent that financial markets are pricing in a maximum of two 25 basis point cuts this year, at the very best. As the US economy continues to grow, and inflation remains uncomfortably high, some market commentators are beginning to moot just one cut, or in extreme cases, no cuts at all in 2024. While the latter may be extreme, market expectations boost the US dollar.
Over in the Euro Area, things are very different and multiple rate cuts look nailed on this year. Euro Area growth is flat at best and inflation continues to move towards target. Financial markets are currently pricing in three 25-basis point cuts this year, starting at the June ECB meeting. The markets are also tightening the odds on a second cut at the July meeting, ahead of the August holiday season in Europe. As the gap between US and EU interest rates widens – in favor of the US – then EUR/USD will come under increased selling pressure.
EUR/USD has fallen recently as the widening rate differential story gains traction. While there looks set to be further downside, a heavily oversold CCI reading suggests that there may be some short-term upside or at least a period of consolidation. Any move back towards the 1.0700 area would open up a short opportunity, with a stop loss at 1.0800, with a longer-term move back down to the 104.45/1.0516 area seen as the downside target.
EUR/USD Daily Price Chart – April 15th, 2024
Retail trader data shows 72.50% of traders are net-long with the ratio of traders long to short at 2.64 to 1.The number of traders net-long is 4.21% higher than yesterday and 69.16% higher from last week, while the number of traders net-short is 7.25% higher than yesterday and 44.56% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
| Change in | Longs | Shorts | OI |
| Daily | 0% | 18% | 7% |
| Weekly | -21% | 30% | -3% |
What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1.
