Euro (EUR) Market Latest – EUR/USD and EUR/GBP Poised Ahead of Fed and ECB

Central Banks’ Monetary Policy Decisions Awaited as Market Digests Expectations

The next two days hold significant monetary policy announcements from both the Federal Reserve (Fed) and the European Central Bank (ECB). Market participants anticipate the Fed to halt its fourteen-month hiking cycle, while the ECB is expected to raise rates by 25 basis points. These outcomes have already been factored into market expectations. However, post-decision statements from both central banks will carry substantial weight. Adding to the mix, the May US inflation report, set to release today, is expected to reveal a gradual easing of price pressures in the US. Any deviation from these forecasts could inject volatility into the US dollar in anticipation of the FOMC decision on Wednesday.

EUR/USD has approached a previous resistance level just below 1.0800 ahead of the inflation report, recording a new two-week high today. Unless there is a significant deviation from expectations, the pair is likely to remain range-bound ahead of the US CPI data before entering a holding pattern prior to the FOMC decision on Wednesday.

Market sentiment among retail traders indicates that 59.86% of traders are currently net-long, with a long-to-short ratio of 1.49 to 1. The number of net-long traders has increased by 6.98% compared to yesterday but decreased by 8.88% compared to last week. Meanwhile, net-short traders have decreased by 2.14% since yesterday but increased by 6.55% from last week.

EUR/USD DAILY PRICE CHART – JUNE 13, 2023

Our approach to crowd sentiment is typically contrarian, implying that the current net-long positioning suggests the possibility of further declines in EUR/USD prices. While sentiment is more net-long compared to yesterday, it is less net-long than last week. Thus, the combination of current sentiment and recent changes leads to a mixed trading bias for EUR/USD.

The British Pound has gained momentum today following the release of the latest UK jobs report. The report indicates a decline in the unemployment rate to 3.8% and a robust 7.2% increase in UK wages. Although these figures bode well for the UK economy, they raise concerns for the Bank of England (BoE) in its battle against inflation and further strengthen the resolve of BoE hawks to continue raising the UK Bank Rate.

EUR/GBP has displayed a consistent downward trend in recent weeks as traders price in a higher terminal rate in the UK. This anticipated widening of the EU/UK interest rate differential has led EUR/GBP to reach a multi-month low around 0.8540 this week. The downward movement may persist in the coming weeks, with 0.8500 serving as the next level of support. A more significant sell-off could drive the pair towards the end target of 0.8340.

EUR/GBP DAILY PRICE CHART – JUNE 13, 2023