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EUR/USD rate rebounds ahead of yearly low to approach 50-Day SMA

EUR/USD carves a series of higher highs and lows following the kneejerk reaction to the US CPI, and the exchange rate appears to be on track to test the 50-Day SMA (0.9924) as it reverses course ahead of the yearly low (0.9536).

Source: Bloomberg

EUR/USD consolidates within the September range after failing to push above the moving average earlier this month, and the exchange rate may continue to track the negative slope in the indicator to mirror the price action from earlier this year.

As a result, the advance from the monthly low (0.9632) may end up being short-lived as the Federal Reserve pursues a restrictive policy, and EUR/USD may face headwinds ahead of the European Central Bank (ECB) meeting on October 27 as the Governing Council adopts a ‘meeting-by-meeting approach.’

It seems as though the ECB will continue to normalize monetary policy after frontloading the “transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two per cent medium-term target,” but the threat of a slowing economy may push the central bank to deliver smaller rate hikes over the coming months as the Euro Area is expected to “stagnate later in the year and in the first quarter of 2023.”

In turn, the Euro may continue to underperform against its US counterpart as the President Christine Lagarde and Co. show no interest in carrying out a restrictive policy, while the tilt in retail sentiment looks poised to persist as traders have been net-long EUR/USD for most of 2022.

Source: DailyFX

The IG Client Sentiment (IGCS) report shows 52.68% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.11 to 1.

The number of traders net-long is 1.74% higher than yesterday and 9.33% lower from last week, while the number of traders net-short is 5.34% higher than yesterday and 13.01% higher from last week. The decline in net-long interest has alleviated the crowding behavior as 62.38% of traders were net-long EUR/USD last week, while the rise in net-short position comes as the exchange rate approaches the 50-Day SMA (0.9924).

With that said, the recent series of higher highs and lows in EUR/USD raises the scope for a test of the moving average, but the exchange rate may track the negative slope in the indicator to largely mirror the price action from earlier this year.

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.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. 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. See full non-independent research disclaimer and quarterly summary.

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