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Key Focus: Repricing on ECB Forecasts Keeps Euro Vulnerable

Euro ECB

Euro faces downside risk due to the dovish ECB and bleak forecasts. Economic data and critical events impact EUR/USD.

EUR/USD ANALYSIS

Sharp repricing on ECB rate forecasts keeps the euro on offer. Later today, the spotlight will be on Euro area retail sales and US jobs data. EUR/USD faces vulnerability to further downside.

EURO FUNDAMENTAL BACKDROP

The euro has opened flat this morning after a slew of daily closes in the red. Concerns arise from weak economic data in the euro area, including yesterday’s composite and services PMIs that persist in contractionary territory and the increasingly negative economic growth projected over the next 12 months, according to the European Central Bank (ECB) survey.

Adding to the EUR downside was the fact that US ISM services PMIs surprised to the upside, although JOLT openings missed the downside, reaching the lowest level for 2023. ECB officials have become increasingly dovish recently, reflected in the money market pricing of the ECB’s rate path.

Key Focus: Repricing on ECB Forecasts Keeps Euro Vulnerable

Markets see the first round of rate cuts around March 2024 and could weigh negatively on the euro should we continue to see weak euro area economic data. The significant repricing occurred after the ECB’s Schnabel (known as Hawk) stated, “INFLATION DEVELOPMENTS ARE ENCOURAGING AND THE FALL IN CORE PRICES IS REMARKABLE.”

Later today, eurozone retail sales will come into focus, while the main volatility driver will likely stem from ADP employment change ahead of Friday’s Non-Farm Payrolls (NFP). The ECB’s Nagel is also scheduled to speak and will give additional insight into the ECB’s thinking.

The EUR/USD pair is below the 200-day moving average and the 1.0800 psychological handle. The Relative Strength Index (RSI) now suggests a preference towards bearish momentum, which considers the 50-day moving average, 1.0700, and trendline support.

Resistance levels

  • 1.1000
  • 1.0900
  • 200-day MA
  • 1.0800

Support levels

  • 1.0700/50-day MA/Trendline support

IG CLIENT SENTIMENT DATA: BEARISH

IGCS shows retail traders are neither NET LONG on EUR/USD, with 55% of traders currently holding long positions (as of this writing).

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