ECB’s Villeroy Keeps Euro Muted, German CPI 5.1%

EUR/USD ANALYSIS

• Euro dismisses strong German CPI data.
• ‘Dovish’ ECB interpretation continues today.

EURO FUNDAMENTAL BACKDROP

A perceivably dovish ECB yesterday post rate announcement hushed Euro bulls after gains earlier this week. Monetary tightening guidance was quite vague in terms of a start date and the gradual path thereof did not bode well for EUR strength. US inflation data printed in line with expectations but recorded a 40-year high leaving the dollar room to run to the upside.

Earlier today we saw German inflation track estimates however comments by the ECB’s Villeroy muted any upside by reinforcing uncertainty within Europe, a cooling if inflationary pressures as well as a ‘wait and see’ approach regarding interest rate hikes.

Source: DailyFX Economic Calendar

Central bank divergence between the Fed and ECB is as prevalent as ever leaving the Euro exposed to further hardship.

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

EUR/USD bears have clawed back some lost gains this week shortly after pulling the pair out of oversold territory shown on the RSI indicator. The course for EUR/USD firmly favors the downside both fundamentally and technically with geopolitical tensions remaining as a key influencing factor.

Resistance levels:

• 20-day EMA (purple)
• 1.1000

Support levels:

• Triangle support
• 1.0806
• 1.0636

IG CLIENT SENTIMENT DATA POINTS TO SHORT-TERM UNCERTAINTY

IGCS shows retail traders are currently LONG on EUR/USD, with 63% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, recent changes in long and short positions have resulted in a mixed bias.

Contact and follow Warren on Twitter: @WVenketas