EUR/USD Nudges Higher, German ZEW Misses as Economic Sentiment Wanes
The recent ZEW economic sentiment report from Germany reveals a decline in optimism during the month of April. The economic sentiment indicator dropped to 4.1, which was below both the expected value of 15.3 and the previous month’s reading of 13. According to Professor Achim Wambach, who serves as President of ZEW, this trend is concerning.
A number of factors have negatively impacted economic expectations, including increased caution from banks in granting loans, high inflation rates, and internationally restrictive monetary policies. However, it is worth noting that concerns over an acute international financial market crisis have decreased. In fact, earnings expectations for banks and insurance companies have improved compared to the previous month and are now in positive territory once again.
Euro Area sentiment fell to 6.4 compared to 10 in the previous month
The EUR/USD pair recently experienced a decline of approximately 170 pips over the course of two days, but has now begun to rise and is targeting the 1.1000 level for a re-test. The US dollar has weakened today after Monday’s increase in US Treasury yields. The technical analysis for EUR/USD remains optimistic, as the short-term support is provided by the 20-day simple moving average (red line on chart), and there have been recent higher highs and higher lows. Additionally, a multi-week cup and handle pattern is still unfolding. A confirmed break above 1.1000 will draw attention back to last Friday’s multi-month high at 1.1076, while support can be found in the range of 1.0900 to 1.0910.
EUR/USD DAILY PRICE CHART – APRIL 18, 2023
Retail Traders Boost Net-Longs
According to data from retail traders, 49.02% of them have a net-long position, while the ratio of short to long traders is 1.04 to 1. The percentage of traders with a net-long position has increased by 38.26% since yesterday and by 13.09% since last week. On the other hand, the percentage of traders with a net-short position has decreased by 11.53% since yesterday and by 0.45% since last week.
In academia, it is common to adopt a contrarian approach towards crowd sentiment. The current scenario indicates that the EUR/USD prices may continue to escalate as traders are net-short. However, a comparison with yesterday and last week’s data suggests that traders are currently less net-short. This change in sentiment raises concerns that the current trend of EUR/USD prices may soon undergo a reversal despite the traders still remaining net-short.
