EUR/USD to Remain Supported By Hawkish ECB As Sentra Meeting Heats Up

US DATA, HAWKISH ECB POLICYMAKERS, ECB FORUM EUR/USD enjoyed a decent rally yesterday despite the return of US Dollar strength in the US session following positive US data. However, this was largely offset by ongoing hawkish commentary from European Central Bank (ECB) policymakers at the ECB Forum in Sentra, Portugal. Currency Strength Chart: Strongest – JPY, Weakest – NZD. According to reports, ECB policymakers see little reason for a pause in rate hikes at this stage despite signs of a slowdown in the Euro Area. This morning we heard further comments from policymaker Luis de Guindos who stated that the July rate hike is set with September likely to depend on data. Such ongoing hawkish rhetoric is likely to keep the Euro supported in the interim with EURUSD likely to remain rangebound. Over the past week German data has been a drag on the Euro Area with signs of slowing growth and deteriorating confidence. The Bundesbank stating as much in a recent update discussing the growth prospects for the German economy with minimal growth predicted for Q2. The Gfk Consumer Confidence number had been on a steady upward trajectory since October 2022 before the decline seen from today’s print which came in at -25.4 Vs -23 forecasted figure. On a positive note, French consumer confidence improved slightly but remains in pessimistic territory with a print of 85, up from 83 in the previous month. Not a lot in terms of risk events on the docket today for both the Euro Area and the US with Italian inflation US Bank Stress Tests the only real highlight. The European Central Bank (ECB) Forum is likely to remain a key driver for market moves as sentiment is likely to shift back and forth. Today sees the ECB Forum deliver a powerhouse panel of Central Bankers with Powell, Ueda, Bailey and ECB’s Lagarde to take the stage. I do accept hawkish comments from both Powell and particularly Bailey given the Bank of England’s (BoE) challenges and recent 50bps rate hike. However, the question on everyone’s lips will likely be whether Bank of Japan (BoJ) Governor Ueda is finally ready to adopt a more hawkish tone given comments of intervention by the Japanese Minister of Finance amongst others.

Looking at EURUSD From a Technical.

perspective and we continue to receive mixed signals. Following a break of structure, yesterday’s bullish engulfing candle close also printed a Morningstar pattern if you will, hinting at a bullish continuation and at odds with the overall price action picture hinting at downside continuation. As mentioned above EURUSD seems to be driven the fundamental factors in play at the moment with ECB hawks likely to keep Euro supported above the 1.0900 handle while hawkish comments from Fed Chair Jerome Powell later today could cap any attempted break back above the 1.1000 handle. For now, caution and a short-term approach around the recent range may be the best option as the bull vs bears tussle continues. IGCSshows retail traders are currently SHORT on EURUSD, with 62% of traders currently holding SHORT positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are short suggests that EURUSD may enjoy a short bounce before continuing fall.

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