Home Forex Markets EUR/USD trend forecast: the status of the past two decades is at hand, and a 50 basis point interest rate hike may be difficult to achieve

EUR/USD trend forecast: the status of the past two decades is at hand, and a 50 basis point interest rate hike may be difficult to achieve

by WOOWinvest
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Abstract: The head of the Dutch central bank became the first ECB official to propose a 50 basis point interest rate hike, but this proposal may not become a reality; the minutes of the ECB meeting will be released on Thursday, when the market will have a clearer view on the ECB interest rate path know.

Dutch central bank chief backs 50bps rate hike

Dutch central bank governor Klaas Knot yesterday became the first member of the ECB’s Governing Council to propose a 50-basis-point rate hike in the coming months if inflationary pressures persist. In an interview with Dutch TV, Knot said the ECB should raise interest rates by 25 basis points in July and that a larger hike should not be ruled out if data show inflation rising and becoming firmer. While Mr Knot is a well-known ECB hawk, his comments sent the euro immediately higher on Tuesday, accompanied by a rebound in German bond yields. Monetary policy minutes from the ECB’s last meeting, due tomorrow, may give markets some clarity on the path of interest rates going forward.

EUR/USD daily chart

EUR/USD’s daily chart shows that the fight around the 1.0500 area is underway, with prices quickly recovering from recent lows. If a breakout is confirmed, focus on the 1.0345 level on Friday, below which is the December 2002 low of 1.0340; on the other hand, in order to continue the rebound, the price needs to take the 1.06340 level.

EUR/USD IG Client Sentiment

Nearly 68.43% of clients are net long, and the ratio of net longs to net shorts is 2.17:1. Net longs fell 8.30% from yesterday and 12.71% from last week. The number of net short positions increased by 21.20% from yesterday and by 19.23% from last week. The IG Sentiment Index is often used as an inverse indicator, with most retail traders being net long suggesting EUR/USD could fall. However, net-long positions are down from yesterday and last week, and the latest change in positions warns that EUR/USD may reverse its uptrend, although most retail traders are currently net-long.

(Nick Cawley)

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