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Market update: EUR/USD rate rebound struggles ahead of former support zone

Source: Bloomberg

EUR/USD appears to have reversed course following the failed attempt to test the June 2002 low (0.9303) as the Relative Strength Index (RSI) recovers from oversold territory, and the exchange rate may attempt to test the 50-Day SMA (1.0016) if it manages to push back above the former support zone around the July low (0.9952).

However, EUR/USD may continue to track the negative slope in the moving average as the Federal Reserve pursues a restrictive policy, and the European Central Bank’s (ECB) September meeting may do little to influence the exchange rate as the Governing Council “frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to our two per cent medium-term target.”

Source: DailyFX

The comments suggest the ECB will normalize monetary policy at a slower pace as the central bank acknowledges that “risks to growth are primarily on the downside,” but the larger-than-expected rise in the Euro Area Consumer Price Index (CPI) may force President Christine Lagarde and Co. to deliver another 75bp rate hike at the next meeting on October 27 as the Governing Council pledges to “follow a meeting-by-meeting approach.”

Until then, EUR/USD may struggle to retain the rebound from the yearly low (0.9536) if the former support zone around the July low (0.9952) acts as resistance, while the tilt in retail sentiment looks poised to persist as traders have been net-long the pair for most of the year.

Source: DailyFX

The IG Client Sentiment report shows 59.33% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.46 to 1.

The number of traders net-long is 3.83% higher than yesterday and 22.54% lower from last week, while the number of traders net-short is 9.45% higher than yesterday and 57.57% higher from last week. The decline in net-long interest has helped to alleviate the crowding behavior as 74.79% of traders were net-long EUR/USD last week, while the jump in net-short position comes as EUR/USD struggles to extends the series of higher highs and lows from last week.

With that said, the account of the ECB meeting may do little to influence the near-term outlook for EUR/USD as the Governing Council shows limited interest in carrying out a restrictive policy, and the rebound from the yearly low (0.9536) may end up being short-lived if the former support zone around the July low (0.9952) acts a resistance.

EUR/USD rate daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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