EUR/USD Rate Rebound Stalls Ahead Of ECB Rate Decision

EUR/USD seems to be stuck in a narrow range despite the upward revision in the Eurozone Gross Domestic Product (GDP) report, and the exchange rate may continue to consolidate ahead of the ECB meeting as the central bank appears to be on track to retain the current course for monetary policy.

Image of DailyFX economic calendar for Euro Area

It seems as though the ECB is in no rush to switch gears as President Christine Lagarde offered a dovish guidance following a Eurogroup meeting from earlier this month, and the Governing Council may continue to support the Euro Area as the monetary union faces a technical recession.

In turn, the ECB may stick to the same script as “the outlook for both growth and inflation remained dependent on the support of fiscal policy measures and the very accommodative monetary policy,” and more of the same from President Lagarde and Co. may spark a bearish reaction in EUR/USD if the Governing Council stays on track to increase its purchases under the pandemic emergency purchase program (PEPP) “at a significantly higher pace than during the first few months of the year.”

At the same time, a less dovish forward guidance may fuel the recent rebound in the Euro as the Governing Council insists that “the future pace of purchases under the PEPP was data-dependent and would continue to be based on the joint assessment of financing conditions and the inflation outlook,” and the tilt in retail sentiment may persist following the ECB meeting as traders have been net-short EUR/USD since April.

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment report shows 38.50% of traders are currently net-long EUR/USD, with the ratio of traders short to long standing at 1.60 to 1.

The number of traders net-long is 5.13% higher than yesterday and 9.78% higher from last week, while the number of traders net-short is 0.42% higher than yesterday and 4.78% lower from last week. The rise in net-long position has helped to alleviate the crowding behavior as only 37.51% of traders were net-long EUR/USD last week, while the decline in net-short interest comes as the exchange rate extends the rebound from the monthly low (1.2104) following the NFP report.

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