Euro Market Latest – EUR/USD and EUR/GBP Poised Ahead of Fed and ECB

EUR/USD PRICES, CHARTS, AND ANALYSIS

• US inflation, FOMC, and ECB rate decisions are all near.

• The UK jobs market remains robust, underpinning Sterling.

The next two days will see both the Federal Reserve (Fed) and the European Central Bank (ECB) announce their latest monetary policy decisions with markets fully expecting the Fed to pause its fourteen-month hiking cycle, while the ECB will hike rates by a further 25 basis points. Both these outcomes are fully expected and priced into the market, however post-decision commentary from both central banks will be key.

Ahead of these two policy decisions, later today the May US inflation report is released with forecasters expecting price pressures in the US to ease, but not at a particularly quick rate. A miss of expectations, either way, today could give the US dollar a shot of volatility ahead of Wednesday’s FOMC decision.

EUR/USD is testing a prior level of resistance just under 1.0800 ahead of today’s inflation report and today made a fresh two-week high. The pair will likely remain trapped in a small range ahead of US CPI, unless there is a large deviation from expectations, before settling into a holding pattern ahead of Wednesday’s FOMC decision.

EUR/USD DAILY PRICE CHART – JUNE 13, 2023

Retail Trading Sentiment is Mixed

Retail trader data shows 59.86% of traders are net-long with the ratio of traders long to short at 1.49 to 1.The number of traders net-long is 6.98% higher than yesterday and 8.88% lower from last week, while the number of traders net-short is 2.14% lower than yesterday and 6.55% higher 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. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

The British Pound is pushing higher again today after the latest UK jobs report showed the unemployment rate moving back to 3.8%, while UK wages rose by a robust 7.2%. These figures, while good for the UK economy, will give the Bank of England further cause for concern in its fight against inflation and will embolden BoE hawks further to keep hiking the UK Bank Rate.

EUR/GBP has moved consistently lower over the six weeks as traders price in a higher UK terminal rate. This, expected, widening of the EU/UK interest rate differential has seen EUR/GBP print a multi-month low this week around 0.8540 and this move lower may continue in the coming weeks with 0.8500 the next level of support. A larger sell-off could see 0.8340 as the end target.

EUR/GBP DAILY PRICE CHART – JUNE 13, 2023

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Written by Nick Cawley, Senior Strategist for DailyFX