EUR/USD bounces off fresh one-week lows (1.0382) after a limited reaction to an unexpected rise in German unemployment and looks set to continue tracking down amid expectations the Fed will implement higher rates for the rest of the year moving average.
However, the ECB looks set to reverse course next month, with President Christine Lagarde saying “in July we intend to raise policy rates for the first time in 11 years” and it appears the Governing Council will do more in the coming months, President Lagarde insisted that “the process of normalizing our monetary policy will proceed in a firm and sustained manner”.
The comments suggest that the ECB will follow a similar path to the U.S. in its efforts to fight inflation. President Lagarde warned that “more force at the September meeting would be appropriate if the medium-term inflation outlook persists or deteriorates”, though whether the Governing Council will continue to adjust its outlook at its next meeting on July 21 Guidance remains to be seen.
EUR/USD IG Client Sentiment
Nearly 67.76% of clients are net long, and the ratio of net longs to net shorts is 2.10:1. Net longs rose 4.59% from yesterday and 15.39% from last week. Net shorts fell 4.96% from yesterday and 14.72% from last week. The IG Sentiment Index is often used as an inverse indicator, with most retail traders being net long suggesting EUR/USD could fall. And the net long position has further increased compared to yesterday and last week. Combined with the current retail sentiment and the latest changes in positions, the outlook for EUR/USD is even more bearish.
Given that the FOMC is normalizing monetary policy faster than the ECB, EUR/USD could continue to track the downside 50-day SMA (1.0570), but if it holds the monthly low (1.0359), the pair could continue to track in the coming days May be range-bound.
EUR/USD made a series of lower highs and lows after testing the 50-day SMA (1.0570) and could continue to track the downward moving average if it fails to hold the June range.
If bearish price action persists, EUR/USD could test the year low (1.0349); a close below the 1.0370 (38.2% extension) area would open the door to the 1.0220 (161.8% extension) area.
However, if EUR/USD can hold the monthly low (1.0359), it could be range-bound; a close above 1.0500 (100% extension) could look for another shock to the 50-day SMA (currently at 1.0570).
The next area of interest is around 1.0640 (78.6% extension), a breakout/close above the 1.0710 (100% extension) area would open up the path to the 1.0760 (61.8% extension) to 1.0780 (100% extension) area Gates, the top of the range is near the monthly high (1.0774).
