Euro News and Analysis
- Dollar dip sends EUR/USD higher at the start of a busy week
- IG client sentiment favors a bearish continuation despite the recent reprieve
- EUR/GBP frustratingly non-directional within broader sideways channel
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
Dollar Dip Sends EUR/USD Higher at the start of a Busy Week
There is plenty of EU, UK and US data this week with the standouts being the ECB rate decision, US inflation and UK GDP, jobs data. Market expectations of a pause remain around 60% with the risk of a surprise hike not to be discounted. With progress on inflation slowing down and dark clouds forming over Europe as far as economic data is concerned, now could be the last opportunity the committee has to tighten the screws one more time.
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The dollar came under pressure at the start of the week as the mature uptrend breached overbought territory and has subsequently turned sharply lower. In the early hours on Monday, the Bank of Japan governor Kazuo Ueda suggested that by year end, the Bank should have enough data to determine whether it can end negative rates. Understandably, such an admission led to an appreciation of the downtrodden yen, helping send the US dollar basket lower. With more than 50% of the dollar basket comprising of EUR/USD, the uplift in the pair is clear.
The major risk to the recent move higher in EUR/USD is a sizeable inflation print. Consensus around US headline inflation sets a high bar for an upward surprise with analysts expecting inflation to rise 3.6%, up from 3.2% in the July print. However, the mere trend of rising inflation could be enough to add to worries that higher oil prices, combined with a hotter US economy, poses further upside potential for the US dollar – weaker EUR/USD.
The pair posed a strong start on Monday but the mature downtrend remains intact, especially below the 200-day simple moving average (SMA). A retracement towards the major SMA/ 1.0831 could develop ahead of the US inflation print but ultimately, the downtrend remains constructive and could continue should inflation post concerning figures. Support lies at 1.0700.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
IG Client Sentiment Highlights Extended EUR/USD Selling
Despite a significantly long positioning in EUR/USD, the IG client sentiment indicator hints at a continuation of the current bearish trend.
IG Client Sentiment (EUR/USD)
Source: IG, DailyFX - prepared by Richard Snow
EUR/USD:Retail trader data shows 66.08% of traders are net-long with the ratio of traders long to short at 1.95 to 1.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
Read our dedicated guide below on how to utilise IG client sentiment when analysing potential trade setups :
| Change in | Longs | Shorts | OI |
| Daily | -13% | 8% | -1% |
| Weekly | -35% | 58% | 3% |
EUR/GBP Stops Short of Resistance as the Pair Appears Aimless
EUR/GBP is a relevant pair this week with the UK GDP, jobs and unemployment data and the ECB rate decision all taking place. The massive uncertainty around the ECB rate decision can be observed in price action as directional moves have proven to be short-lived. Price action has tried to forge directional moves in recent trading sessions but to no avail. The presence of longer wicks signals immediate rejections of extended moves, resulting in a very narrow trading range for the pair around the 0.8565 level.
Resistance remains at 0.8635 as the first indication of bullish momentum before 0.8650 comes back into contention. Support is at 0.8565 followed by the more significant 0.8515 level.
EUR/GBP Daily Chart
Source: TradingView, prepared by Richard Snow
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--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
