EURO FUNDAMENTAL BACKDROP
On Wednesday morning, the euro experienced a drop in value compared to the US dollar as a result of a significant decline in Chinese balance of trade for May. This is indicative of a global decrease in demand and historically, the euro has been positively correlated with the Chinese economy. Furthermore, German industrial production also fell short of expectations, which further contributes to concerns about an impending recession. Recent inflation and PMI data for the eurozone have also suggested a slowing economy. The escalating situation in Ukraine is yet another factor contributing to the negative outlook for the currency, which is expected to persist in the short-term and increase demand for the safe haven US dollar.
EUR/USD Economic calendar GMT+ 02:00
The ECB has been a primary advocate for the euro and with multiple speakers scheduled for today, it is likely that the hawkish perspective will be reinforced. Schnabel, a representative of the ECB, has already expressed that there is more work to be done in terms of monetary policy. Current money market rates suggest that there will likely be a 25bps increase next week, with the possibility of further tightening in the future.
EUR/USD daily Chart
The current daily price movement of EUR/USD has reached the convergence point of the bear pennant formation (in black). If the pattern breaks out and the closing price confirms below the pennant support, it may follow a typical trajectory towards subsequent support levels. Alternatively, surpassing the pennant resistance could nullify any downside potential and bolster euro strength from an optimistic standpoint.
- 200-day MA (blue)
IG Client sentiment data: Bullish
According to IGCS data, retail traders are presently displaying a bullish outlook on EUR/USD, as 65% of them are holding onto long positions at the time of writing.