Market Analysis

EUR/USD Breaks Out of Narrow Range as Dovish Fed Rhetoric Persists

EUR / USD rate points

EUR / USD breaks the price range carried over from last week as more and more Federal Reserve officials warn of a temporary rise in inflation and the exchange rate could continue to fall from the beginning of this year as it clears the highest level in February (1.2243) in May.

EUR / USD breaks from a narrow range if Dovish Fed’s rhetoric persists

EUR/USD trades Kansas City Fed as president of fresh monthly high (1,2266) Esther Georgewho serves Federal Open Market Committee (FOMC) in 2022 will confirm the guidelines for monetary policy and it seems as if Federation officials are in no hurry to reduce emergency measures as the US remainsmore than 8 million jobs are shy compared to pre-pandemic levels. “

President George acknowledged the economic recovery “The outlook is so strong that the debate has quickly shifted from demand shortages to supply constraints“But continued that”the factors that have contributed to the current inflation are likely to disappear over time “ while talking Kansas City Fedagricultural symposium.

The comments indicate that the FOMC will maintain the current monetary policy stance as the central bank intendsmaintains purchases of securities backed by treasuries and mortgages until significant further progress has been made towards meeting their employment and inflation targets;, “And it remains to be seen whether the Committee, as chairman, will adjust further guidelines with the next interest rate decision on 16 June. Jerome Powell and Co need to update the Economic Forecast Summary (SEP).

Until then, the EUR / USD may continue to track the decline earlier this year if more and more Federation officials support a temporary rise in inflation and a further appreciation of the exchange rate could encourage retail prices to tilt, as the behavior of the 2020 population rises again.

Picture of IG customer mood for EUR / USD rate

The IG customer mood report shows 31.18% of traders are now network long EUR / USD, short and long trader relationships stands from 2.21 to 1 p.m.

The number of net long traders is 13.67% lower than yesterday and 3.84% higher than last week, while the number of net short traders is 17.15% yesterday and 7.84% higher than last week. The rise in the net-long position has helped alleviate crowded behavior, as only 28.73% of traders had a net-long EUR / USD last week, but retail ratios may also rise during periods of short-term interest rate hikes.

That being said the decline from the highest level in January (1.2350) may turn out to be a correction of the broader trend rather than a change in EUR / USD behavior, as the crowded behavior from 2020 recovers and the exchange rate may continue to trade with fresh monthly highs in the coming days as it falls outside the price range carried over from last week.

EUR / USD rate daily card

Picture of the daily chart of EUR / USD exchange rates

Source: Trading View

  • Keep in mind that after a failed attempt to test, the EUR / USD set up a falling channel Highest of April 2018 (1.2414), but a decline from the January peak (1.2350) may turn out a correction of a broader trend rather than a change in market behavior when the exchange rate is traded back above the 50-day SMA (1.1995) to break the downward trend.
  • The Relative Strength Index (RSI) showed the same dynamics as the oscillator turned over the sold territory to exit the declining trend, but needs to move more than 70 to show a further appreciation of the euro / US dollar as the price behavior observed in December.
  • Despite this EUR / USD may continue to follow the decline from the beginning of the year if it deletes Highest of February (1.2243) in May, closely above Fibonacci overlaps from about 1.2220 (38.2% expansion) to 1.2260 (expansion 161.8%) bringing 1.2320 (23.6% retracement) area on the radar.
  • Movement Highest in January (1.2350) can push EUR / USD 1.2370 (61.8% expansion) towards the region, with the next area of ​​interest being around 1.2430 (50%) and 1.2440 (100%).

– Written by currency strategist David Song

Follow me on Twitter at @DavidJSong

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