Home Forex Markets Euro Outlook: The euro retreats after resistance, the formation of an ascending triangle suggests a continued downward trend

Euro Outlook: The euro retreats after resistance, the formation of an ascending triangle suggests a continued downward trend

by WOOWinvest
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ECB officials expressed concerns about inflation; EUR/USD takes a breather before continuing to decline; IG Client Sentiment Index shows a bullish bias.

Euro Fundamentals Background

The euro gained momentum after the FOMC meeting, which came as a surprise to many, given the Fed’s relatively hawkish rhetoric drifting away from the more cautious European Central Bank. This can be attributed to the fact that the market has largely priced in an aggressive tightening cycle by the Fed, leaving little room for a stronger dollar. With investors extremely cautious about the euro, any slight positives from the Ukraine war, a weaker dollar and a hawkish ECB will drive EUR/USD buying.

On Thursday, European Central Bank officials Schnabel and Villeroy both expressed their concerns about inflationary pressures from volatile energy prices. European CPI figures were in line with expectations, underscoring the deep-seated nature of euro zone inflation. While raising interest rates may not be the answer, markets are optimistic. ECB President Christine Lagarde further downgraded her rate-hike forecast after echoing her previous views on a gradual rate path, saying it would only take effect “for some time.”

technical analysis

EUR/USD’s daily price action shows that the EUR/USD ascending triangle pattern (blue) continues to be limited. Usually an ascending triangle is associated with a continuation of a bullish move, however, given that the previous downtrend prevented further upside in EUR/USD, an ascending triangle could also lead to a bearish continuation.

Currently, EUR/USD is testing the resistance of the triangle pattern, but there is a good chance that the pair will fall further after breaking the support.

Resistance level:

50-day EMA line (blue line) 1.1138 first-line triangle resistance

Support level:

20-day EMA line (purple line) triangle support 1.1000

IG Client Sentiment Data: EUR/USD is short-term bullish

The IGCS Client Sentiment Index shows that 56% of traders are currently net long (as of this writing). We generally think of the retail sentiment index as a contrarian indicator, with recent changes in long and short positions leading to a bullish bias. (Translated by Ashley by Warren Venketas)

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