EUR/USD Rate Reserves Ahead Of May High With NFP Report On Tap

EUR/USD extends the decline from the monthly high (1.2254) as President Lagarde pledges to support the Euro Area “over the pandemic and well into the economic recovery,” with the central bank head going onto say that the Governing Council “is committed to preserving favorable financing conditions throughout this period.”

The comments suggest the ECB is in no rush to switch gears as President Lagarde reiterates that “there are no limits to our commitment to the Euro,” and the Euro may face headwinds ahead of the next policy meeting on June 10 as “the Governing Council expects purchases under the PEPP over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year.”

Image of DailyFX economic calendar for US

As a result, the update to the US Non-Farm Payrolls (NFP) report may influence the near-term outlook for EUR/USD as the economy is expected to add 650K jobs in May following the 266K expansion the month prior, and signs of a more robust recovery may put pressure on the Federal Open Market Committee (FOMC) to change its tone as “a number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

In turn, a growing number of Federal Reserve officials may show a greater willingness to adjust the forward guidance over the coming months, and the tilt in retail sentiment looks poised to persist ahead of the FOMC rate decision on June 16 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 37.51% of traders are currently net-long EUR/USD compared to 31.18% last week, with the ratio of traders short to long-standing at 1.67 to 1.

The number of traders net-long is 8.12% higher than yesterday and 5.89% lower from last week, while the number of traders net-short is 4.29% higher than yesterday and 2.31% higher from last week. The decline in net-long position could be a function of stop-loss orders getting triggered as EUR/USD remains under pressure ahead of the NFP report, while the rise in net-short interest comes as the exchange rate slips to a fresh weekly low (1.2136).

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