EUR: Before Annual Dip, EUR/USD Rate Rises up to Touch 50-Day SMA

Oct 19, 2022
VOT Research Desk

Market Analytics and Considerations

Following the knee-jerk reaction to the US Consumer Price Index (CPI), EUR/USD sliced a series of higher both highs and lows, and the exchange rate looks set to test the 50-Day SMA (0.9924) as it flips direction ahead of the an

RATE OF EUR/USD REVERSES PRIOR TO Annual Bottom TO Reach 50-DAY SMA

After failing to surpass the moving average earlier in the month, EUR/USD remains within the September range, and the exchange rate may continue to follow the indicator’s negative slope to mirror the price action from earlier this year.

As a result, the rise from the monthly low of 0.9632 may not last long as the Federal Reserve maintains its restrictive policy and the Governing Council of the European Central Bank (ECB) adopts a ‘meeting-by-meeting approach,’ which could hurt EUR/USD ahead of the ECB meeting on October 27.

After frontloading the “transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two percent medium-term target,” it appears that the ECB will continue to normalize monetary policy. However, the threat of a slowing economy may force the central bank to deliver smaller rate hikes over the course of the upcoming months because the Euro Area is anticipated to “stagnate later in the year and in the first quarter of 2023.

As a result, the Euro may continue to underperform against the US currency, as President Christine Lagarde and her team do not intend to implement a restrictive policy. On the other hand, traders have been net-long EUR/USD for the majority of 2022, suggesting that retail sentiment will remain skewed.

At the moment, 52.68 percent of traders are net-long EUR/USD, with a long-to-short ratio of 1.11 to 1.

Net-short traders are 5.34 percent higher than yesterday and 13.01 percent higher than last week, while net-long traders are 1.74 percent higher than yesterday and 9.33 percent lower than last week.

The crowding behavior has been alleviated by the decline in net-long interest, as 62.38 percent of traders were net-long EUR/USD last week. On the other hand, the rise in net-short positions occurs as the exchange rate gets closer to the 50-Day SMA (0.9924).

Having said that, the EUR/USD pair’s recent series of higher highs and lows makes it more likely that the moving average will be tested. However, the exchange rate may follow the indicator’s negative slope to largely mirror the price action from earlier this year.

PIVOTS & TECHNICAL (Daily)

Moving Averages (Daily)