EUR/USD Rate to Face Range Bound Conditions on Failed Test of June Low

EUR/USD RATE TALKING POINTS

EUR/USD carves a series of lower highs and lows after testing the 50-Day SMA (1.0570) earlier this week, but the exchange rate may face range bound conditions over the coming days as it appears to be defending the monthly low (1.0359).

 

EUR/USD RATE TO FACE RANGE BOUND CONDITIONS ON FAILED TEST OF JUNE LOW

EUR/USD bounces back from a fresh weekly low (1.0382) after showing a limited reaction to the unexpected rise in Germany’s Unemployment report, and the exchange rate continue to track the negative slope in the moving average with the Federal Reserve on track to implement higher interest rates throughout the rest of the year.

However, it seems as though the ECB will shift gears next month as President Christine Lagarde states that “in July we intend to raise our policy rates for the first time in 11 years,” and it seems as though the Governing Council will take additional steps over the coming months as the central bank head insists that “the process of normalising our monetary policy will continue in a determined and sustained manner.

The comments suggest the ECB will follow a similar path to its US counterpart in an effort to combat inflation, and it remains to be seen if the Governing Council will continue to adjust the forward guidance at its next meeting on July 21 as President Lagarde warns that “if the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.”

Until then, EUR/USD may face range bound conditions if it manages to defend the monthly low (1.0359), while the tilt in retail sentiment looks poised to persist as traders have been net-long the pair for most of the year.

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment report shows 68.51% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 2.18 to 1.

The number of traders net-long is 2.24% lower than yesterday and 2.25% higher from last week, while the number of traders net-short is 5.56% lower than yesterday and 4.25% higher from last week. The rise in net-long interest has fueled the crowding behavior as 60.83% of traders were net-long EUR/USD last week, while the rise in net-short position comes as the exchange rate carves a series of lower highs and lows after testing the 50-Day SMA (1.0570).

With that said, EUR/USD may continue to track the negative slope in the 50-Day SMA (1.0570) as the Federal Open Market Committee (FOMC) normalizes monetary policy faster than its European counterpart, but the exchange rate may face range bound conditions over the coming days if it manages to defend the monthly low (1.0359).

EUR/USD RATE DAILY CHART

Image of EUR/USD rate daily chart

Source: Trading View

  • EUR/USD carves a series of lower highs and lows after testing the 50-Day SMA (1.0570), and the exchange rate may continue to track the negative slope in the moving average if it fails to defend the June range.
  • In turn, EUR/USD may attempt to test the yearly low (1.0349) if the bearish price action persists, with a close below the 1.0370 (38.2% expansion) region opening up the 1.0220 (161.8% expansion) region.
  • However, EUR/USD may face range bound conditions if it manages to defend the monthly low (1.0359), with a close above the 1.0500 (100% expansion) handle raising the scope for another run at the 50-Day SMA (1.0570).
  • Next area of interest coming in around 1.0640 (78.6% expansion), with a break/close above the 1.0710 (100% expansion) region opening up the Fibonacci overlap around 1.0760 (61.8% expansion) to 1.0780 (100% expansion), which lines up with the monthly high (1.0774).