EUR / USD Rate Eyes 2017 Low as Bear Flag Formation folders

EUR / USD Rate Talking Points

EUR / USD is trading at a fresh annual low (1.0354) as a bear flag formation unfolds and the oversold value of the Relative Strength Index (RSI) is likely to accompany a further decline in the exchange rate as bearish momentum appears to pick up. to. tempo.

EUR / USD Rate Eyes 2017 Low as Bear Flag Formation folders

EUR / USD is on the verge of testing the 2017 low (1.0340) as it depreciates for the fifth week in a row, and failure to stay above the 2003 low (1.0334) may push the exchange rate against parity as The Federal Reserve is normalizing monetary policy ahead of its European counterpart.

As a result, the EUR / USD may continue to depreciate ahead of the next Federal Open Market Committee (FOMC) interest rate decision on June 15, as the central bank appears to be on track to deliver another 50bp rate hike, and it looks that a shift in the forward-looking guidance of the European Central Bank (ECB) will only affect the exchange rate as president Christine Lagarde insists that “it is appropriate for politics to return to more normal settings. “

The ECB appears to be on a predetermined course as it plans to conclude its acquisitions of assets in the third quarter of 2022, and the Governing Council can only try to buy time at its next meetings on June 9, as President Lagarde reiterates that “tThe first rate hike, provided by the ECB’s forward-looking guidance on interest rates, will take place some time after the end of net asset purchases. ”

Nevertheless, President Lagarde acknowledged that “this can mean a period of only a few weeks”As the Governing Council comes under pressure to tame inflation, but current market conditions may continue to pull on the EUR / USD, especially as the US dollar benefits from the deterioration in risk appetite.

On a trip, the oversold reading in RSI is likely to accompany a further decline in EUR / USDlike the price movement seen earlier in the year, while the slump in the retail mood appears to continue as traders have been net-far paired since mid-February.

Image of IG Client Sentiment for EUR / USD exchange rate

That IG Client Sentiment report shows 78.30% of traders are currently not-long EUR / USD, with the ratio of dealers long and short standing up at 3.61 to 1.

The number of traders net-long is 2.32% higher than yesterday and 1.00% lower from last week, while the number of traders net-short is 18.38% lower than yesterday and 8.73% lower from last week . The marginal decline in net-long interest rates has not done much to alleviate the crowding behavior, as 72.27% of traders were net-long EUR / USD earlier in the week, while the decline in net-short position comes as the exchange rate trades to a new annual low (1.0354).

With that said, EUR / USD the low point in 2017 (1.0340) as the RSI sits in oversold territory but failure to test Low 2003 (1.0334) can pull the oscillator back above 30 if the key price region acts as support.

EUR / USD Exchange rate daily chart

Picture of EUR / USD exchange rate daily chart

Source: Trade show

  • A bear flag formation appears to be unfolding as the EUR / USD clears its low in April (1.0471), with the exchange rate tip to test 2017-made (1.0340) as Relative Strength Index (RSI) pushes into oversold territory for the second time this month.
  • A pause / close below Fibonacci overlaps around 1.0330 (161.8% expansion) to 1.0370 (38.2% expansion) opens up the 1.0070 (161.8% expansion) region, with a move below par that brings the December 2002 low (0.9859) on the radar.
  • But lack of momentum to test 2003 low (1.0334) May pull the RSI out of oversold territory, and fail to break / close below overlap around 1.0330 (161.8% increase) to 1.0370 (38.2% increase) can push EUR / USD back towards the 1.0500 (100% expansion) handle, with the next area of ​​interest coming around 1.0630 (78.6% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong