EUR/USD ANALYSIS
ECB revisions help bolster market bullish reaction. US retail sales fail to deter EUR. The euro is back to levels last seen in mid-May.
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FUNDAMENTAL CONTEXT OF THE EURO
The euro was boosted by the announcement by the European Central Bank (ECB) to raise interest rates 25 bps as expected (see economic calendar below). The stronger euro comes from revised higher inflation projections despite lower economic growth estimates. The average revisions to inflation and GDP are as follows:
2023 = 5.4%; 2024 = 3.0%; 2025 = 2.2% – SECURITY INFLATION2023 = 5.1%; 2024 = 3.0%; 2025 = 2.3% – CORE INFLATION2023 = 0.9%; 2024 = 1.5%; 2025 = 1.6% – ECONOMIC GROWTH
Given these projections, the ECB could foresee the region coming into its own 2% target after 2025, which may be overstated given that recent readings have been declining (albeit slower than the preferred rate of decline). Global rate hikes have proven to have a lagged effect on the global economy and may see more significant results sooner than expected.
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ECONOMIC CALENDAR EUR/USD (GMT +02:00)
Source: DailyFX Economic Calendar
Interestingly, money markets (see table below) have “modestly” revised their expectations for 2023 back from over 60 bps of cumulative rate increases a 40 bps. This could be due to lower economic growth projections that could increase fears of a recession in the euro zone while taking into account manufacturing statistics in the regions.
INTEREST RATE PROBABILITY OF THE ECB
Source: Refinitiv
TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Picture made by Warren VenketasGI
Daily EUR/USD price action shows markets’ bullish reaction to the news despite a better-than-expected US retail sales report, which included an improvement in initial jobless claims. With no further impact data scheduled for today, it will be interesting to see whether or not these levels can be sustained during the US trading session.
Resistance levels:
Support levels:
IG CLIENT SENTIMENT DATA: BULLISH
IGCS shows that retail traders are currently LONG in EUR/USD, with 52% of traders currently holding long positions (as of this writing). At DailyFX we normally take a contrary view to the crowd sentiment, but due to recent changes in long and short positioning we come to a short-term bullish bias.
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