EUR/USD ANALYSIS & TALKING POINTS
- EZ economic data unable to deter USD backing.
- All eyes on the Fed tomorrow with emphasis in post-announcement conference.
- Can current USD strength last against the EUR?
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EURO FUNDAMENTAL BACKDROP
The euro received several key economic data prints (see economic calendar below) from various parts of the eurozone today but did not necessarily reflect the data via the EUR/USD currency pair. Although French inflation missed estimates, the actual figure of 6% still improves on the December figure while the German labor market maintained its robust state. It would be expected that this type of information would drive hawkish bets for the upcoming ECB meeting but the trading session from Asia and throughout the European session looks to be risk-off. The USD naturally benefitted from this hesitancy but a hawkish slant to tomorrow’s Fed meeting is very much front of mind as well. A 25bps rate hike is unlikely to change but the Fed’s hard stance on reaching a peak rate of 5% for 2023 may be reiterated despite market pricing dismissing their guidance.
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EZ GDP showed growth QoQ but was not enough to provide upside support for the Euro however tightening credit standards in Q1 did weigh on euro pricing. Business and household borrowing are showing signs of decline and may be signs of the ECB’s rate hikes finally filtering through.
Later today there US consumer confidence will close out the trading day and although this is classified as a high impact event, it shouldn’t deter prices too much ahead of the Fed tomorrow.
EUR/USD ECONOMIC CALENDAR
Source: DailyFX economic calendar
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
The EUR/USD daily chart shows price action coming off the 1.0900 psychological resistance handle with four straight days of euro weakness against the greenback (last seen in October 2022). Bearish/negative divergence may be unfolding with fading bullish momentum shown via the Relative Strength Index (RSI).exposing subsequent downside should the Fed show an aggressive hand tomorrow.
IG CLIENT SENTIMENT: BEARISH
IGCS shows retail traders are currently SHORT on EUR/USD, with 56% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term downside bias.
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