Abstract: Germany’s GfK consumer confidence index in January was better than expected; seasonal factors are not conducive to the dollar, but after entering 2023, the euro may face downward pressure.
Euro Fundamentals Background
Germany’s GfK consumer confidence index for January, released on Wednesday, topped expectations, signaling a more rosy outlook for the third time in a row. EUR/USD held steady on the economic data for the time being as the greenback traded higher.
Later today, the Conference Board consumer confidence index will be in focus, but after last week’s central bank guidance, high-profile events for the rest of the year are likely to have a smaller impact on the overall outlook. Having said that, any outcome that differs significantly from expectations could trigger some significant price volatility, but the euro’s short-term backbone will be the hawkish stance of the European Central Bank (ECB), which is committed to reducing inflation in the euro zone pressure.
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EUR/USD daily chart
EUR/USD has risen above the June 2022 swing high of 1.0615. Seasonal factors suggest that the USD tends to weaken over the course of December, at least so far, and if this continues for the rest of the month, EUR/USD could head towards the psychological 1.0700 level. The Relative Strength Index (RSI) has moved out of overbought territory and may be heading back down. Heading into 2023, recession fears and subdued risk sentiment could take hold again, putting downward pressure on the euro.
EUR/USD IG Client Sentiment
Nearly 41.69% of clients are net long, and the ratio of net short to net long is 1.40:1. Net longs are down 0.74% from yesterday and up 12.65% from last week. Net shorts are down 3.37% from yesterday and 2.27% from last week. The IG Sentiment Index is often used as a contrarian indicator, with the majority of retail traders being net-short suggesting EUR/USD could rise. However, net short positions are lower than yesterday and last week, and the latest changes in positions warn that the EUR/USD trend may reverse and decline, although most retail investors currently hold net short positions.
(by Warren Venketas)
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