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ECB’s de Guindos’ Hawkish Sentiments Strengthens Euro

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EUR/USD ANALYSIS

  • Chinese optimism provides pro-cyclical currencies and euro with support.
  • U.S. growth data dominates the economic calendar.
  • Declining bullish momentum for EUR/USD?

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EURO FUNDAMENTAL BACKDROP

The euro is having a firm start to Thursday’s European session with the dollar on the backfoot after China’s reiteration to stimulate economic growth boosted risk sentiment. Flows exited the safe-haven dollar helping the EUR gain further traction. In addition the European Central Bank (ECB)’s de Guindos maintained the hawkish narrative stating that “50bps may soon become the new standard” to quell rising inflationary pressures within the eurozone.

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Thin liquidity over the festive period may add to bigger moves should economic data significantly beat estimates. Later today, U.S. GDP will be in focus and is expected to improve for the third consecutive release exposing downside risk for the pair. From a bearish perspective, another important metric will come via the core PCE print and with inflation at the top of the Fed’s agenda, another move lower could bring doves back into the picture.

EUR/USD ECONOMIC CALENDAR

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

From a price action standpoint, the daily EUR/USD chart shows bulls pushing above the June 2022 swing high which has yet to be resolutely breached. Considering the Relative Strength Index (RSI) is coming off overbought levels, I maintain a potential grind lower as we close off 2022.

Resistance levels:

Support levels:

BULLISH IG CLIENT SENTIMENT

IGCS shows retail traders are currently SHORT on EUR/USD, with 63% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term upside bias.

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