EUR/USD Rate On Cusp Of Testing 200-Day SMA Ahead Of ECB Rate Decision

EUR/USD extends the series lower highs and lows from the previous week amid the failed attempt to defend the January low (1.1952), and the Euro may continue to weaken against the Greenback ahead of the European Central Bank (ECB) meeting on March 11 as the US Dollar still broadly reflects an inverse relationship with investor confidence.

Image of DailyFX economic calendar for Euro

It remains to be seen if the ECB interest rate decision will influence the near-term outlook for EUR/USD as the central bank is expected to retain the current path for monetary policy, and more of the same from the Governing Council may lead to a limited market reaction as board member Fabio Panetta warns that “the risks of providing too little policy support still far outweigh the risks of providing too much.”

It seems as though the ECB is on a preset course after expanding and extending the pandemic emergency purchase program (PPEP) at its last meeting for 2020, and President Christine Lagarde and Co. may largely endorse a wait-and-see approach over the coming months as European authorities prepare to distribute the Next Generation EU (NGEU) program in 202.

In turn, the decline from the January high (1.2350) may turn out to be a correction in the broader trend rather than a change in EUR/USD behavior like the pullback from the September high (1.2011), but the recent selloff in the Euro has triggered a flip in retail sentiment as the exchange rate is on the cusp of test the 200-Day SMA (1.1813) for the first time since May 2020.

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment Report shows 52.11% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.09 to 1.

The number of traders net-long is 10.35% higher than yesterday and 8.60% higher from last week, while the number of traders net-short is 21.19% higher than yesterday and 0.15% lower from last week. The rise in net-long interest has led to a shift in retail sentiment as 49.71% of traders were net-long EUR/USD last week, while the marginal decline in net-short position comes amid the failed attempt to defend the January low (1.1952).

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