EUR/USD Rate Talking Points

EUR/USD continues to hold above the December 2002 low (0.9859) as it is trading within last week’s range, and further data printouts from the Eurozone could generate a rebound in the exchange rate as the Consumer Price Index (CPI) is expected to show higher inflation .

EUR/USD Rate Outlook: The Eurozone CPI Report at a Glance

EUR/USD appears to be bouncing ahead of the monthly low (0.9900) as it tries to retrace the decline that followed the speech of Chairman of the Federal Reserve Jerome Powelland the European Central Bank (ECB) could come under pressure to adopt an approach similar to that of the Chief Economist Phillip Lane reveals that thethe next monetary policy meeting in September will mark the beginning of a new phase.”

As a result, the Eurozone CPI update could spark speculation of larger ECB rate hikes, as the core inflation rate is expected to rise to 4.1% in August, versus 4.0% pa in the previous month, and signs of mounting price pressures could lead to a near-term bounce in EUR/USD as Governing Council member Lane insists that “this new phase will consist of a meeting-by-meeting (MBM) approach to setting interest rates.”

In a recent speech, Lane asserts that “a a steady pace (neither too slow nor too fast) to close the gap with the terminal rate is important for several reasons“, and it remains to be seen whether the ECB will change its tone at the next meeting on September 8 because “the scale and timing of rate adjustments will be determined by the evolution of the terminal rate and the appropriate speed to bridge the gap between the current rate and the terminal rate.”

Until then, a slight rise in the Eurozone CPI could keep EUR/USD above the monthly low (0.9900) as it encourages the ECB to normalize monetary policy at a faster pace, and a rebound in the exchange rate may help mitigate the tilt in retailer sentiment like the behavior seen earlier this year.

The IG Customer Opinion Report shows 63.01% of traders are currently long fillet EUR/USD, with the ratio of long to short traders upright at 1.70 to 1.

The number of net long traders is 4.10% lower than yesterday and 15.68% lower than last week, while the number of net short traders is 38.96% higher than yesterday. yesterday and 50.22% higher than last week. The drop in net buying interest eased crowding behavior as 72.35% of traders were net long EUR/USD last week, while the jump in net position at the selling comes as the exchange rate trades within last week’s range.

That said, EUR/USD may rebound over the next few days amid the failed attempt to test the December 2002 low (0.9859)but the exchange rate may continue to follow the negative slope in the 50-day SMA (1.0204) to largely reflect the price movement seen in June.

Daily EUR/USD rate chart

Source: Commercial view

• EUR/USD Seems Stuck in a Tight Range Following Failed Test Attempt December 2002 low (0.9859)with the Relative Strength Index (RSI) increasing the possibility of a short-term bounce in the exchange rate as it holds above the oversold territory.
• Need a fence over the 1.0070 (161.8% expansion) region bring the 1.0220 (161.8% expansion) return area on radar, but the exchange rate may continue to follow the negative slope of the 50-day SMA (1.0204) to largely reflect the price action from June.
• At the same time, the lack of momentum to close above the 1.0070 (161.8% expansion) region could push EUR/USD back towards the Fibonacci straddle around 0.9910 (78.6% retracement) to 0.9950 (50% expansion), with a break below the December 2002 low (0.9859) opening the October 2002 low (0 .9685).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong