Author: Sir Amar – Technical Analyst
The European Central Bank (ECB) will hike its deposit rate above zero in September for the first time in a decade, according to most economists polled by Reuters, who expect it to be at least 50 basis points higher than expected by the end of the year. While economists say euro-zone inflation has yet to peak, the ECB has given itself some leeway to catch up with global rivals who are quick to hike rates to neutral by planning a new tool to narrow the divergence of bond yields in the block.
At 1.0570 EUR/USD is flat on the day as the market relinquishes some ground made overnight in the absence of a US Dollar offer and a bias to the Euro. The ECB’s Monetary Policy Committee is due to meet on July 21 when the tightening cycle is expected to start and the euro looked cheaper thanks to a less aggressive result from the Federal Reserve Chairman’s testimony on Wednesday. The dollar fell as US Treasury yields fell on concerns that the US economy could slide into recession. Fed Chair Jerome Powell said at a Senate Banking Committee hearing that higher interest rates, while painful, are the Federal Reserve’s tool to curb inflation.
The report showed that 60.83% of traders are currently net-long EUR/USD, with the ratio of long to short traders being 1.55 to 1. The number of net traders is 12.70% lower than yesterday and 17.50% lower than last week while the number of net short traders is 14.33% higher than yesterday and 41.01% higher than last week. That being said, the EUR/USD could try to scale above the moving average as it extends the rise after the US Federal Reserve rate decision and the exchange rate could finally test the old support zone around the May high at 1.0787 as it does seem to play up. as resistance.