EUR/USD Price, News and Analysis:
- Euro Area inflation remains subdued, prompting concern at the ECB.
- EUR/USD may struggle to push higher despite bullish client sentiment.
Inflation in the Euro Area remains subdued and may prompt further action from the ECB in the coming months. Friday’s monthly and annual Euro Area inflation prints (September) are expected to miss both market expectations and last month’s negative out-turns adding extra pressure on the central bank to boost price pressures. Speaking at the latest ECB and its Watchers conference today, ECB President Christine Lagarde said that in the current low inflation environment, ‘the wider discussion today, however, is whether central banks should commit to explicitly making up for inflation misses when they have spent quite some time below their inflation goals….if credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound’. In short, further monetary action to drive inflation higher.
EUR/USD is currently just holding onto 1.1700 as US dollar strength and Euro weakness combine to keep downward pressure on the pair. This week’s short-term turnaround is being sold off and the 1.1600/1.1610 area may be tested again soon, especially if Friday’s inflation is poor. Last week’s 20- and 50-dma cross-over prompted further EUR/USD selling, causing the pair to become heavily oversold (CCI), and with precious few areas of decent support below 1.1600 on the chart, the ECB wishes for a lower EUR/USD rate may come to pass sooner rather than later.
EUR/USD Daily Price Chart (January – September 30, 2020)
IG Retail trader data shows 37.45% of traders are net-long with the ratio of traders short to long at 1.67 to 1. The number of traders net-long is 18.48% lower than yesterday and 13.51% lower from last week, while the number of traders net-short is 11.01% higher than yesterday and 2.93% higher from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.
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