EUR / USD rate reserves ahead of May peak with NFP report available

Talking Points on EUR / USD Rates

EUR / USD seems to have reversed the course before the May high (1.2266) as President of the European Central Bank (ECB) Christine Lagarde supports an accommodative forward stance for monetary policy, and new data released from the United States could keep the exchange rate under pressure as employment is expected to rise for the fifth consecutive month.

EUR / USD rate reserves ahead of May peak with NFP report available

EUR / USD prolongs decline from monthly high (1.2254) as President Lagarde pledges to support eurozone ”on the pandemic and well in the economic recovery“, The head of the central bank went on to say that the Board of Governors”undertakes to maintain favorable financing conditions throughout this period.

The comments suggest the ECB is in no rush to change gears as President Lagarde reiterates that “there are no limits to our commitment to Epissing“and the euro could face headwinds before the next political meeting on June 10 because”the Governing Council expects purchases under the PEPP in the current quarter to continue to be made at a significantly higher rate than in the first months of the year. “

As a result, the update of the US Non-Farm Wages (NFP) report may influence the short-term outlook for EUR / USD, as the economy is expected to create 650,000 jobs in May after the expansion of 266,000. month before, and signs of a more robust recovery could put pressure on the Federal Open Market Committee (FOMC) to change its tone as “a A number of participants suggested that if the economy continued to move rapidly towards the Committee’s goals, it might be appropriate at some point in future meetings to start discussing a plan to adjust the pace of purchases of active.

In turn, a growing number of Federal Reserve officials may show a greater willingness to adjust the forecast in the coming months, and the tilt in retail sentiment looks set to persist ahead of the FOMC’s move on. rates on June 16, with traders having short EUR / USD since April.

Image of IG client sentiment for the EUR / USD rate

the IG Client Sentiment Report shows 37.51% of traders are currently net-long EUR / USD against 31.18% Last week, with the ratio of short / long traders standing to 1.67 to 1.

The number of net-long traders is 8.12% higher than yesterday and 5.89% lower than last week, while the number of net-short traders is 4.29% higher at yesterday and 2.31% higher than last week. Decline in net long position could be due to triggering stop-loss orders as EUR / USD remains under pressure ahead of NFP report, while rise in net short interest comes as exchange rate slips towards a new weekly low. (1.2136).

That said, it remains to be seen if Down from January high (1.2350) will turn out to be a correction in the broader trend rather than a change in the behavior of EUR / USD as crowding behavior from 2020 resurfaces, but the exchange rate seems to have reverse price before May high (1.2266) because it extends the series of lower ups and downs of the maximum monthly (1.2254).

Daily EUR / USD rate chart

Image of the daily EUR / USD rate chart

Source: Trading view

  • Keep in mind that the EUR / USD has established a descending channel following the failure of the attempt to test the April 2018 high (1.2414), But the decline from January high (1.2350) could turn out to be a broader trend correction rather than a change in market behavior as the exchange rate trades above the 50 day SMA (1.2040) to break out of the downtrend.
  • the Relative Strength Index (RSI) showed similar momentum as the oscillator reversed before oversold territory to exit a downtrend, but needs a move above 70 to indicate further appreciation of EUR / USD like the price action seen in December. . .
  • Bullish momentum appears to be waning as RSI retreats to overbought bought territory, and EUR / USD appears to have reversed course ahead of the May high (1.2266) as it extends the string of lower highs and lows from the monthly high (1.2254).
  • A close below the Fibonacci overlap around 1.2140 (50% retracement) at 1.2170 (78.6% expansion) could push EUR / USD back towards the 1.2080 area (78.6% retracement). 6%), the next area of ​​interest being around 1.2010 (100% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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