Ahead of Euro Area Inflation: EUR/USD, EUR/GBP, EUR/AUD Price Setups
The euro’s recent decline against the US dollar has led to overselling, prompting a potential rebound as Euro area inflation data approaches. Nevertheless, the magnitude and speed of the drop have made it difficult for the euro to sustain any significant upward movement.
The euro’s recent rise against the US dollar was halted due to factors such as overbought conditions, stretched positioning, and hawkish repricing in US rates. A publication from May 16 titled “To What Extent Euro Could Fall? EUR/USD, EUR/GBP, EUR/JPY Price Setups” provides further information on this matter.
Although overbought conditions have been corrected, the positioning has not undergone any significant changes. Despite the recent decline, the long speculative EUR positioning remains at its highest level since 2020, which is evident in the major currency space. This indicates that overcrowded conditions for the single currency are likely to persist.
Although overbought conditions have been corrected, the positioning situation remains unchanged. Currently, long speculative EUR positioning is hovering near the highest levels since 2020 and is among the most prominent currencies (as shown in the chart). This indicates that the single currency may continue to experience overcrowded conditions despite its recent decline.
Economic Surprise Index and FX Positioning
Despite the correction of overbought conditions, the positioning status remains unaltered. The long speculative EUR positioning presently stands close to its peak levels since 2020 and is one of the most significant currencies, as illustrated in the chart. The information suggests that the Euro may persist in encountering overcrowding despite its recent drop.
EUR/USD Daily Chart
Although overbought conditions have been corrected, the positioning situation remains unchanged. Currently, long speculative EUR positioning is hovering near the highest levels since 2020 and is among the most prominent currencies (as shown in the chart). This indicates that the single currency may continue to experience overcrowded conditions despite its recent decline.
EUR/USD Daily Chart
At a macro level, the Euro area’s economic data has been disappointing, leading to a decline in the value of the EUR. The Economic Surprise Index (ESI) for the Euro area has been decreasing consistently, in contrast to the ESI for the US which has shown signs of stabilizing recently (as illustrated in a chart). The upcoming release of German inflation data on Wednesday and Euro area figures on Thursday, as well as US jobs data on Friday are currently the primary focus in this context.
EUR/USD Weekly Chart
Money markets are currently anticipating an increase of more than two interest rate hikes, with a delay in the peak of rates until December. Gabriel Makhlouf, the head of the Irish central bank, commented recently that inflation persisting could result in more than two rate hikes by the ECB this year. Conversely, the CME FedWatch tool indicates that markets are calculating a 63% probability of a 25 basis points Fed rate hike at the June meeting, up from 25% one week prior.
EUR/USD Daily Chart
EUR/USD: Short-term trend is down
The candlestick charts depicting the EUR/USD trend over 240 minutes indicate a bearish phase, as determined by trending and momentum indicators. Meanwhile, analysis of daily charts reveals that EUR/USD has entered a consolidation phase within the bullish structure that began in late 2022, which was previously identified as a potential risk in early May.
The daily chart of the EUR/USD pair indicates a decrease below the lower boundary of the Ichimoku cloud, which signifies a minor reduction in upward momentum in the short run. The March low of 1.0510, adjacent to the 200-day moving average, may provide more substantial support and impede the current downward trend. Conversely, the mid-May high of 1.0900 may present significant resistance on an upward trajectory.
EUR/GBP Daily Chart
EUR/GBP: Bias remains down
The cessation of the decline in EUR/GBP may indicate a postponement of its downward trend, rather than a complete reversal of its trajectory. To dispel bearish sentiment, the cross must surpass the resistance level at 0.8750. Until that happens, the predisposition for a descent towards the December low of 0.8545 persists.
EUR/AUD Daily Chart
EUR/AUD: Upside could be capped for now
The EUR/AUD currency pair faces the potential for a retest of the 1.5950-1.6050 range, which encompasses the December high and the 89-day moving average. This retracement comes after encountering resistance at the October 2020 high of 1.6825 last month.
Note: “The colour-coded candlestick charts depicted above use blue candles to signify a Bullish phase, red candles to indicate a Bearish phase, and grey candles to denote Consolidation phases. It is worth noting that Consolidation phases can occur during both Bullish and Bearish phases, but they can also manifest towards the end of a trend. It is imperative to understand that candle colors do not predict future trends; they solely communicate the current trend. Moreover, it is possible for candle colors to change in the next bar, and false patterns may arise around the 200-period moving average or support/resistance levels or in sideways/choppy markets. The author cannot guarantee the accuracy of this information, and past performance does not necessarily reflect future performance. Therefore, users of this information assume their own risk.”
