EUR/USD gives back the progress following the Federal Reserve interest rate decision as European Central Bank President Christine Lagarde warns that the Euro Area”will be likely to contract in the first quarter of the year after declining by 0.7 percent in the fourth quarter of 2020,” but the market rate may continue to track the March scope because it manages to maintain over the 200-Day SMA (1.1843).
EUR/USD ERASES FOMC DRIVEN GAIN AS ECB WARNS OF EURO AREA RECESSION
Recent improvements coming out of the ECB seem to be dragging on EUR/USD as the central bank measures up the pace of this pandemic emergency buy programme (PEPP), and also current opinions from President Lagarde indicate the Governing Council is in no hurry to alter the route for fiscal policy although European authorities prepare to distribute the Next Generation EU recovery finance in 2021.
During the testimony in front of this Committee on Economic and Monetary Affairs of the European Parliament, President Lagarde highlighted that the”economic outlook for the euro area remains surrounded by doubt because of the dynamics of the pandemic and the rate of vaccination campaigns,” with the central bank head warning of a technical recession as GDP is now expected to contract for 2 consecutive quarters.
Nevertheless, President Lagarde went onto say that”the continuing vaccination campaigns, together with the slow ease of containment measures underpin expectation of a company dip in economic activity from the second half of 2021,” but it seems like the Governing Council will continue to utilize its emergency measures to support the Euro Area as”purchases under the PEPP during the next quarter to be run at a significantly higher pace than during the first months of the year.”
In turn, that the Euro may face headwinds before another ECB interest rate decision on April 22 as President Lagarde claims to”track developments in the exchange rate seeing their potential implications for the medium-term inflation outlook,” with the current weakness EUR/USD creating a flip in retail opinion as traders turn net-long the set for the fifth time in 2021.
The IG Client Sentiment report shows 51.89% of dealers are currently net-long EUR/USD, with the proportion of traders long to short position at 1.08 to 1.
The amount of dealers net-long is 14.70% higher compared to yesterday and 14.41% higher from a week, while the amount of traders net-short is 7.97% lower compared to yesterday and 0.77% higher from last week. The rise in net-long position appears to have fueled the shift in retail sentiment as 45.55percent of traders were net-long EUR/USD earlier this week, while the marginal increase in net-short curiosity comes as the exchange rate gives back the advance following the Fed rate decision.
It was seen if the crowding behavior from 2020 will resurface as Chairman Jerome Powell and Co.. See the benchmark interest sitting near zero through 2023, and the shift in retail opinion will be short-lived like the behaviour seen before this season.
With that said, key market themes may continue to affect EUR/USD as the US Dollar still reflects an inverse relationship with investor confidence, and the decline from the January high (1.2350) may turn out to be a correction from the broader trend rather than a change in behavior as the market rate holds above the 200-Day SMA (1.1843).
Keep in mind, the EUR/USDcorrection from the September large (1.2011) was an exhaustion from the bullish price action as opposed to a change in trend following the series of failed attempts to close below the 1.1600 (61.8% growth ) into 1.1640 (23.6% expansion) area, together with the Relative Strength Index (RSI) representing a similar lively as the oscillator broke out of this downward trend to recoup from its lowest readings since March.
However, EUR/USD appears to have reversed course following the failed attempt to check the April 2018 high (1.2414), together with the foreign exchange rate extending the decline from the January high (1.2350) as it struggled to push back above the 50-Day SMA (1.2064).
The 50-Day SMA (1.2064) seems to be developing a negative slope as EUR/USD transactions to some new yearlylow (1.1836) in March, but the market rate will continue to monitor the monthly range amid the series of unsuccessful efforts to check the 200-Day SMA (1.1843).
Desire a return over the 1.1920 (78.6% growth ) to deliver the 1.1960 (38.2% retracement) into 1.1970 (23.6% growth ) region on the radar, together with the next region of interest coming in approximately 1.2010 (100% expansion).
But a break/close under 1.1860 (61.8% growth ) opens up the 1.1760 (38.2% growth ) area, with the next region of interest coming in around 1.1700 (23.6% expansion) to 1.1710 (61.8% retracement).
