EUR/USD Rate Talking Points

EUR/USD fails to defend the 2020 low (1.0340) as it tumbles to a contemporary yearly low (1.0161), and the trade charge could fall in direction of parity as the Relative Strength Index (RSI) pushes into oversold territory for the fourth time this 12 months.

EUR/USD Falls Toward Parity as RSI Pushes into Oversold Territory

EUR/USD is again underneath strain after testing the 50-Day SMA (1.0548) in the course of the earlier week, and the trade charge could proceed to trace the unfavourable slope within the shifting common as the RSI reveals the bearish momentum gathering tempo.

The transfer under 30 within the RSI is more likely to be accompanied by an additional decline in EUR/USD like the value motion seen earlier this 12 months, and the weak spot within the trade charge is more likely to persist as lengthy as the oscillator holds in oversold territory.

As a consequence, EUR/USD could proceed to commerce to contemporary yearly lows though the European Central Bank (ECB) plans to implement larger rates of interest later this month, and it stays to be seen if the Governing Council will regulate the ahead steerage for financial coverage as Vice-President Luis de Guindos warns that “a gradual but sustained path of further increases in interest rates will be appropriate” whereas talking at the Frankfurt Euro Finance Summit.

The feedback recommend the ECB might step up its effort to fight inflation as Vice-President Guindos insists that “the size of the interest rate increase in September will depend on the updated medium-term inflation outlook,” and it stays to be seen if the Governing Council will structure a extra detailed exit technique at its subsequent rate of interest resolution on July 21 as the central financial institution struggles to attain its one and solely mandate for value stability.

Until then, EUR/USD could face headwinds as the Federal Reserve is extensively anticipated to ship one other 75bp charge hike in July, whereas the lean in retail sentiment appears to be like poised to persist as merchants have been net-long the pair for many of 2022.

The IG Client Sentiment report reveals 72.42% of merchants are at present net-long EUR/USD, with the ratio of merchants lengthy to quick standing at 2.63 to 1.

The variety of merchants net-long is 1.19% larger than yesterday and 20.06% larger from final week, whereas the variety of merchants net-short is 9.66% larger than yesterday and 11.50% decrease from final week. The rise in net-long curiosity has fueled the crowing conduct as 68.51% of merchants have been net-long EUR/USD final week, whereas the decline in net-short place comes as the trade charge trades to a contemporary yearly low (1.0161).

With that mentioned, EUR/USD could try to check the December 2002 low (0.9859) as the RSI pushes into oversold territory, and the weak spot within the trade charge is more likely to persist as lengthy as the oscillator holds under 30.

EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • EUR/USD clears the 2020 low (1.0340) as it trades to a contemporary yearly low (1.0161) in July, with the decline within the trade charge pushing the Relative Strength Index (RSI) into oversold territory for the fourth time in 2022.
  • EUR/USD could proceed to carve a sequence of decrease highs and lows as lengthy as the RSI holds under 30, with the break/shut under the 1.0220 (161.8% enlargement) area bringing the 1.0070 (161.8% enlargement) space on the radar.
  • A transfer under parity could push EUR/USD in direction of the Fibonacci overlap round 0.9910 (78.6% retracement) to 0.9950 (50% enlargement), and failure to defend the December 2002 low (0.9859) could result in check of the October 2002 low (0.9685).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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