EUR/USD Daily Outlook: Downside risks are still in play
Hi traders, here is today's daily outlook for EUR/USD. The pair didn't see a significant reaction following the ECB meeting, as market expectations were already set for a dovish outcome.
The central bank confirmed that they will stick to their ultra-loose monetary policy until inflation rises to 2% "well ahead" of their forecast period, which translates to around 12-18 months.
With inflation remaining low, this dampened hiking expectations, which could become a major contributor to further weakness in the pair.
Looking at investor positioning in the futures markets, the latest CoT report showed that net bearish bets on the euro have risen to the highest level since March 2020. This 16-month high increases the risks of a potential short-squeeze, although we are currently lacking any catalysts that would be bullish for the euro.
The day is light on economic reports, and the German IFO Business Climate (100.8 vs 102.3 expected) had a rather muted impact on the pair.
The highlight of the week is the US FOMC meeting, where markets will be focused on any hints on tapering. This could support the US dollar ahead of the meeting.
Other US reports to follow is the CB Consumer Confidence (Tuesday, expected softer at 124.2) and the Q2 Advance GDP (Thursday, expected stronger at 8.4%)
Another factor that could prove beneficial for the US dollar is the sour risk sentiment with the start of the new trading week.
US-China relations and delta variant concerns caused a strong drop in Chinese equity indices, which spilled over to European markets this morning. The US dollar would remain supported if risk aversion persists ahead of the FOMC meeting.
All of the mentioned factors could lead to further weakness in EUR/USD.
The pair was last seen near the 1.18 mark which aligns with the 61.8% Fib level of the recent down-move. Trading volume is dropping in the last few hours (even though the pair formed strong bullish bars) and sellers will likely be interested to join the market on EUR rallies.
To the upside, the post-ECB high of 1.1830 is a key resistance for the week, which looks like a very distant goal at the moment.
Rather, I am interested to trade the pair from the sell-side, with last week's low of 1.1754 acting as the first profit target, followed by the 1.1700 level.
The central bank confirmed that they will stick to their ultra-loose monetary policy until inflation rises to 2% "well ahead" of their forecast period, which translates to around 12-18 months.
With inflation remaining low, this dampened hiking expectations, which could become a major contributor to further weakness in the pair.
Looking at investor positioning in the futures markets, the latest CoT report showed that net bearish bets on the euro have risen to the highest level since March 2020. This 16-month high increases the risks of a potential short-squeeze, although we are currently lacking any catalysts that would be bullish for the euro.
The day is light on economic reports, and the German IFO Business Climate (100.8 vs 102.3 expected) had a rather muted impact on the pair.
The highlight of the week is the US FOMC meeting, where markets will be focused on any hints on tapering. This could support the US dollar ahead of the meeting.
Other US reports to follow is the CB Consumer Confidence (Tuesday, expected softer at 124.2) and the Q2 Advance GDP (Thursday, expected stronger at 8.4%)
Another factor that could prove beneficial for the US dollar is the sour risk sentiment with the start of the new trading week.
US-China relations and delta variant concerns caused a strong drop in Chinese equity indices, which spilled over to European markets this morning. The US dollar would remain supported if risk aversion persists ahead of the FOMC meeting.
All of the mentioned factors could lead to further weakness in EUR/USD.
The pair was last seen near the 1.18 mark which aligns with the 61.8% Fib level of the recent down-move. Trading volume is dropping in the last few hours (even though the pair formed strong bullish bars) and sellers will likely be interested to join the market on EUR rallies.
To the upside, the post-ECB high of 1.1830 is a key resistance for the week, which looks like a very distant goal at the moment.
Rather, I am interested to trade the pair from the sell-side, with last week's low of 1.1754 acting as the first profit target, followed by the 1.1700 level.
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