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Euro Fundamental Forecast: EUR/USD Clinging on to 1.1000, Inflation Data Nears

The ramping up of hawkish Fed rhetoric, and the knock-on move higher in US Treasury bond yields, continue to apply downward pressure on EUR/USD with the pair clinging onto the 1.1000 level. Small moves higher are met with sellers, while any recent dip below the 1.1000 sees buyers reappear to try and steady the pair. Whether there are bigger forces at play keeping EUR/USD afloat, there will come a time soon when moves lower will accelerate, due to the widening yield differential between USTS and Bunds, leaving the recent two year low just above 1.0800 at risk. The Federal Reserve is fully expected to hike rates by another 150 basis points this year and start reducing its USD9 trillion+ balance sheet, while the ECB may move rates marginally higher at the end of 2022 if their growth outlook allows. The yield differential between the 10 year UST and Bund is already +190 basis points in the US dollar’s favor. Euro Fundamental Forecast: EUR/USD Clinging on to 1.1000, Inflation Data Nears

The latest Euro Zone inflation data are released next week and are expected to show price pressures continuing to rise across the single block. With the ECB currently unable to tighten monetary policy for fear of disrupting an already weak economic pick-up, it will be left to ECB board members to try and jaw bone the single currency higher. This is unlikely to have any medium-to-long term effect if inflation pushes ever higher. German headline inflation is expected to rise to 6.1% next week, from 5.1% in February, a level that was last seen in the early 1990s.

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Euro Fundamental Forecast: EUR/USD Clinging on to 1.1000, Inflation Data Nears

Retail trader data show62.12% of traders are net-long with the ratio of traders long to short at 1.64 to 1. The number of traders net-long is 1.95% higher than yesterday and 18.00% higher from last week, while the number of traders net-short is 1.89% lower than yesterday and 0.71% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.

What is your view on the EURO – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

Trading analysis offered by RobotFX and Flex EA.