EUR/USD to Track 50-Day SMA After Testing Former Support Zone

EUR/USD Rate Talking Points

EUR/USD threatens the opening range for August as it trades to fresh weekly low (1.0122), and the exchange rate may track the negative slope in the 50-Day SMA (1.0294) as it continues to fall back from the former support zone around the May low (1.0349).

EUR/USD to Track 50-Day SMA After Testing Former Support Zone

Recent price action raises the scope for a further decline in EUR/USD as it extends the series of lower highs and lows from last week, and the exchange rate may struggle to retain the rebound from the yearly low (0.9952) as the former support zone around the May low (1.0349) now acts as resistance.

Looking ahead, it remains to be seen if the Federal Open Market Committee (FOMC) Minutes will influence EUR/USD as Chairman Jerome Powell acknowledges that “it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” and hints of a looming shift in Fed policy may produce headwinds for the Greenback if a growing number of officials show a greater willingness to implement smaller rate hikes over the coming months.

As a result, EUR/USD may face range bound conditions ahead of the next FOMC interest rate decision on September 21 amid waning expectations for another 75bp Fed rate hike, but the committee may retain its current approach in combating inflation as Chairman Powell insists that “another unusually large increase could be appropriate at our next meeting.”

In turn, the recovery from the yearly low (0.9952) may turn out to be a correction in the broader trend with the FOMC on course to carry out a restrictive policy, and the recent flip in retail sentiment appears to have been short-lived as traders have been net-long EUR/USD for most of 2022.

The IG Client Sentiment report shows 63.46% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.74 to 1.

The number of traders net-long is 1.61% higher than yesterday and 16.42% higher from last week, while the number of traders net-short is 1.82% lower than yesterday and 19.31% lower from last week. The rise in net-long interest has fueled the flip in retail sentiment as 49.15% of traders were net-long EUR/USD last week, while the decline in net-short position comes as the exchange rate threatens the opening range for August.

With that said, EUR/USD may continue to track the negative slope in the 50-Day SMA (1.0294) after responding to the former support zone around the May low (1.0349), and the exchange rate may struggle to retain the rebound from the yearly low (0.9952) as it extends the series of lower highs and lows carried over from last week.

EUR/USD Rate Daily Chart

Source: Trading View

• EUR/USD threatens the opening range for August as the former support zone around the May low (1.0349) now acts as resistance, and the exchange rate may largely mirror the price action from June as it struggles to hold above the 50-Day SMA (1.0294).
• In turn, EUR/USD may continue to track the negative slope in the moving average following the failed attempt to break/close above the 1.0370 (38.2% expansion) area, with the move below 1.0220 (161.8% expansion) bringing the 1.0070 (161.8% expansion) region on the radar.
• Next region of interest comes in around 0.9910 (78.6% retracement) to 0.9950 (50% expansion), with a break below the yearly low (0.9952) opening up the December 2002 low (0.9859).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong