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The EUR/USD bear flag formation is taking shape -by Ecork

Talking Points Rate EUR/USD

The EUR/USD appears to be stuck in a tight range as it re-establishes the next advance Federal Reserve Rate DecisionThe exchange rate may continue to consolidate during the coming days as bears flag formation is formed.

Euro Forecast: EUR/USD bear flag formation takes shape

EUR/USD has not changed much since the start of the week even as the dollar benefited from deteriorating risk appetite, but new data out of the US could lead to headwinds for the dollar as the Consumer Price Index (CPI) is expected to show a slowdown in inflation.

US CPI is expected at 8.1% in April after expanding 8.5% annualized in the previous month, evidence of easing price pressures may keep EUR/USD within a range as data indicates that Fed efforts to tame inflation. intended effect.

However, the update may not do much to deter the FOMC from normalizing monetary policy as the head of the New York Fed. John Williamsa permanent voting member of the Federal Open Market Committee, insists that the central bank “Move quickly to return the Fed funds rate to more normal levels this year“, where the official said that the committee is working on”The path of raising the target federal funds rate and reducing the balancet’ while speaking in NABE / Bundesbank International Economic Symposium.

Comments indicate that the Fed is on a predetermined path as a “There is a broad feeling on the committee that an additional 50 basis points increase should be on the table in the next two meetingsThe divergent paths between the FOMC and the European Central Bank (ECB) may limit the recent recovery in the EUR/USD pair as head Christine Lagarde and their partners prepare an exit strategy.

In turn, EUR/USD may face range-bound conditions ahead of the FOMC’s next rate decision on June 15 as a bearish flag formation takes shape, but further exchange rate recovery may continue to dampen the bias in retail sentiment such as behavior seen during last year.

Picture of IG customer sentiment for EUR/USD

The IG Customer Sentiment Report Offers 72.27% of merchants are Currently long net EUR/USD, With the ratio of long-term traders to short selling stands up at 2.61 to 1.

The number of long traders is up 0.97% from yesterday and down by 6.43% from last week, while the number of short traders is up 0.19% from yesterday and 3.06% higher than last week. The drop in net long interest helped mitigate crowding behavior as 76.01% of traders were net long EUR/USD last week, while the rally in short positions comes as the exchange rate re-advances after the FOMC meeting of earlier this month.

However, the update on the US CPI may keep the EUR/USD within a range as inflation is expected to slow for the first time since August, but the consolidation may make way for further depreciation in the exchange rate as a bearish flag formation takes shape.

EUR/USD daily price chart

EUR/USD daily price chart

source: Trading View

  • The negative slope of both the 50-day SMA (1.0856) and the 200-day SMA (1.1335) continues to cast a bearish outlook on the EUR/USD, with a breakout of the 2020 low (1.0636) causing pay with Relative Strength Index (RSI) In oversold territory as the exchange rate fell to a new annual low (1.0471) in April.
  • However, the RSI book-buy signal materialized as EUR/USD reversed ahead of the 2017 low (1.0340), but a bearish flag formation took shape amid lack of momentum to close above 1.0640 region (78.6% expansion).
  • EUR/USD may trade in continuity as it settles above April low (1.0471), but break/close below 1.0500 handle (100% expansion) could push exchange rate towards Fibonacci overlap around it 1.0330 (161.8% expansion) to 1.0370 (38.2% expansion)which is in line with Low 2017 (1.0340).

— By David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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