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EUR/USD is vulnerable to a new US PCE hike


EUR/USD exchange rate Topics of conversation

EUR/USD falling from the new monthly high (1.0094), even though European Central Bank (ECB) implements another 75bp rate hike and fresh data coming out of the US could add to the exchange rate’s recent decline as the Personal Consumer Expenditure (PCE) price index is expected to show sharp inflation.

EUR/USD is vulnerable to a new US PCE hike

euro/USD struggling to hold on to the advance from earlier this week as the ECB stressed that the Governing Council had “made substantial progress in unwinding monetary policy accommodation” with the President Christine Lagarde and Co. show little interest in pursuing a restrictive policy as “future decisions on exchange rates will continue to be data-driven and follow a meeting-by-meeting approach.”

As a result, EUR/USD could face headwinds for the rest of the year as the Federal Reserve plans to push its rate hike cycle forward into 2023, and an update to the US PCE report could prompt the central bank to maintain its current approach to combating inflation. the core measure, the Fed’s preferred measure of inflation, rose to 5.2% in September from 4.9% annually a month earlier.

Another rise in mainly PCE could force Federal Open Market Committee (FOMC) to deliver another 75bp rate hike, and EUR/USD may struggle to hold on ahead of the Fed’s interest rate decision on November 2, as the exchange rate’s short-term recovery appears to be stalling ahead of the September high ( 1.0198).

In turn, failure to extend the recent streak of higher highs and lows could keep EUR/USD within the September range, while the recent change in retail sentiment appears to have been short-lived as traders were net-long the pair for most of the time 2022 year.

IG Client Sentiment Report (IGCS). shows that 53.29% of traders are currently net long on EUR/USD, with a 1.14 to 1 ratio of long to short traders.

The number of net-long traders is 14.78% higher than yesterday and 8.67% lower than last week, while the number of net-short traders is 12.33% lower than yesterday and 4, 20% higher than last week. The decline in net long positions comes as EUR/USD is off a fresh monthly high of 1.0094, while the rise in net short percentage did little to stem the reversal in retail sentiment as 48.48% of traders were net long . couple earlier this week.

That said, a break above the October opening range could see EUR/USD recover further as it extends the streak of higher highs and lows from earlier this week, but a rise in core PCE could keep the exchange rate within bounds. September range as the FOMC pursues restrictive policy.

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Daily EUR/USD Chart

Source: Trade view

  • EUR/USD is trading towards a new monthly high (1.0094) after a failed attempt to test the yearly low (0.9536), and a recent series of higher highs and lows could push the exchange rate towards 1.0070 (161.8% expansion). as now. above the 50-day SMA (0.9888).
  • It looks like EUR/USD will no longer react to the negative slope of the moving average as it clears the opening range for October, but the lack of momentum to hold above the indicator could keep the exchange rate within the September range.
  • Failure to hold above 1.0070 (161.8% extension) could push EUR/USD below the 0.9910 area (78.6% retracement) to 0.9950 (50% extension) with a move below the monthly low (0 .9632) which would put the yearly low (0.9536) back on the radar.

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— Posted by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong


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