Euro (EUR/USD) Latest – The Bullish Trend Remains in Place as the ECB Talks Tough

EUR/USD Price, Chart, and Analysis

• ECB ramps up the hawkish rhetoric.
• EUR/USD benefits from ongoing US dollar weakness.

The European Central Bank is not for turning and will continue to raise interest rates, and keep them there for long enough, ‘so that we can return inflation to 2%’, according to ECB President Lagarde, speaking at the World Economic Forum in Davos. Ms. Lagarde also warned those who questioned the ECB’s intent to further tighten monetary policy into restrictive territory saying, ‘I would invite them to revise their position, they would be well-advised to do so’. Also speaking at DAVOS, Dutch central bank chief Klass Knot suggested that rate hikes will not stop with just one 50bp hike. Knot added ‘most of the ground that we have to cover, we will cover at a constant pace of multiple 50 basis point hikes’. Whether the markets chose to listen to the ECB is another matter, and unless the central bank follows through on its talk, its authority will come under increasing pressure. Financial markets are a very unforgiving place.

Next week’s economic calendar has a raft of high-importance releases that will affect both sides of EUR/USD. The latter half of the week looks the most likely to drive price action with the first look at US Q4 GDP, followed the next day by the Fed’s preferred measure of inflation, core PCE. If either of these releases misses or beats expectations then EUR/USD volatility will surge. In addition to these releases, the latest round of PMI data will be revealed on Tuesday (24th) next week and they should be closely followed.

For all market-moving economic releases and events, see the DailyFX Calendar

The Euro is currently in a tight, consolidation pattern against the US dollar with short-term support around 1.0770 to 1.0780 looking stronger as each session passes. Above there, an old level of horizontal support around 1.07910 is also visible with the next level of resistance seen at 1.09370. If the pair make a confirmed above this level then there is little in the way of technical resistance ahead of 1.11855. The recent overbought CCI reading is currently being reset lower and this will help underpin the pair in the short term.

EUR/USD Daily Price Chart – January 20, 2023

Charts via TradingView

Retail Traders Trim Long Positions

Retail trader data show 37.65% of traders are net-long with the ratio of traders short to long at 1.66 to 1.The number of traders net-long is 9.03% lower than yesterday and 26.51% higher from last week, while the number of traders net-short is 10.46% higher than yesterday and 7.12% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.