Questions for discussion on the EUR / USD rate
EUR / USD rallies above 200-day SMA (1.1883) again as European Central Bank (ECB) slows down Pandemic Emergency Procurement Program (PEPP) for the second week in a row, with recent changes in the Relative Strength Index (RSI) indicating further appreciation in the exchange rate as the oscillator breaks out of the downtrend seen earlier this year.
EUR / USD Tracks 50-Day SMA As ECB Slows PEPP Pace For Second Week
EUR / USD has traded in a downtrend channel again since the beginning of this year after failing to test November low (1.1603)and the exchange rate appears to be on track to test the 50-day SMA (1.1973) as the ECB’s consolidated financial report shows the pace of PEPP contraction to 15.6 billion euros in the week ending April 2 from € 20.4 billion a week earlier.
It remains to be seen if the ECB will continue to cut its PEPP asset purchases as the March meeting report insists thatthe risks associated with the growth prospects of the euro area in the medium term have become more balanced,“And it appears that the central bank will maintain the current monetary policy stance as the Board of Governors promises”quarterly check the pace of purchases at monetary policy meetings based on joint assessments of financing conditions and inflation forecasts.“
The comments suggest the ECB will rely on its current instruments to achieve its policy target, as the central bank warns that “The optimism prevailing in financial markets, reflected in ‘reflationary deals’, did not seem to be shared by businesses and households, which generally remained cautious., “And the Board of Governors will say that”the rise in risk-free interest rates and GDP-weighted sovereign yields must be visible and sustained to have a significant impact on broader financing terms.“
In turn, the ECB stresses that “but The possible misconception that the Board of Governors has implicit control of the yield curve should be avoided., “And the president Christine Lagarde and Co. may continue to take a wait-and-see approach with the next interest rate decision on April 22, as the central bank will remain “ready to adjust all of its instruments, depending on the circumstances, in order to ensure the steady movement of inflation towards its goal… “
Until then, the EUR / USD pair may continue to trade in a downtrend channel from the beginning of this year, as the ECB insists that “The significant increase in the pace of PEPP purchases over the next three months was widely considered justified., “but decline from January high (1.2350) could be a correction rather than a shift in the broader trend as crowding behavior from 2020 reappears.
AT IG Customer Sentiment Report shows 41.28% of traders current clean long EUR / USD, with the ratio of short and long traders standing up 1.42 to 1.
The number of net long traders is 7.26% lower than yesterday and 27.62% lower than last week, while the number of net short traders is 3.43% higher than yesterday and 28 .06% higher than last week. A decrease in the net long position can be a function of taking profit at the EUR / USD rate. rallies above the 200-day SMA (1.1882) again, with growing interest in net short, which prompted a shift in retailer sentiment as 50.53% of traders were net long earlier this week.
With that said, EUR / USD could challenge the downward channel from the beginning of this year amid a shift in retail sentiment, and the exchange rate appears to be on track to test the 50-day SMA (1.1973) as a relative strength index ( RSI). breaks off a downward trend that began earlier this year.
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Daily chart of the EUR / USD rate
A source: Trading point of view
- EUR / USD has established a descending channel after failing to test April 2018 high (1.2414), and decline from January high (1.2350) could be trend reversal as the 50-day SMA (1.1973) reflects the negative slope.
- In turn, EUR / USD may trade in a March range as the exchange rate approaches channel resistance, but recent developments in Relative Strength Index (RSI) indicate further appreciation of the exchange rate as the oscillator emerges from the downtrend that took place earlier this year.
- A move back above the 200-day SMA (1.1883) pushed EUR / USD towards the 1.1920 area (78.6% gain) and the next area of interest will appear around From 1.1960 (61.8% expansion) to 1.1970 (23.6% expansion), which is largely the same as 50-day SMA (1.1973).
- Need a breakout / close above the Fibonacci overlap From 1.1960 (61.8% expansion) to 1.1970 (23.6% expansion) to exclude a downward channel that could open the 1.2010 area (100% extension).
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— Posted by David Song, currency strategist
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