Hi, dear traders! On Monday, EUR/USD reversed upwards and moved up slightly. The retracement level of 200.0% does not appear to be important for the pair anymore, as it is stuck in a horizontal channel. This morning, Germany's GDP data and Spain's inflation data came out. Both of these reports were weak, but they can be examined differently. While the falling GDP in Germany is clearly negative, higher inflation in Spain was unexpected and may be a positive factor for the euro. At this point, traders are not concerned about GDP in the European Union, Germany or Spain. They are still focused on inflation reports and monetary policy statements. However, rising inflation is a new excuse to speculate about how long the ECB's monetary policy tightening will last. If inflation stops decelerating, it will mean that the ECB needs to tighten its policy. Thus, if inflation stops declining or even increases, like in Spain, it means that the ECB's interest rate could be set even higher in 2023. This is very good news for the European currency, which is why it increased slightly today on the news.
However, Spain is only one of the 27 eurozone member states. If inflation starts to rise in all EU countries, then it would be a cause for alarm. Yet even a rise in inflation cannot be considered unexpected. The ECB's interest rate has not yet risen enough to anticipate a drop towards 2%. The consumer price index was largely pushed down by lower oil and gas prices, and not by monetary policy tightening. Inflation has stopped falling. Now it's up to the ECB to make a move.
According to the H4 chart, the pair continued to rise towards the retracement level of 50.0% at 1.0941. If EUR/USD bounces off it, it could then decline towards the Fibo level of 38.2% at 1.0610. The ascending trend channel indicates that the trader sentiment is bullish. EUR is unlikely to drop sharply unless it closes below the channel. The bearish CCI divergence indicates that EUR/USD may decrease to some extent.
Commitments of Traders (COT) report:
Last week, traders opened 9,464 Long contracts and 2,099 Short contracts. The mood of major traders remains bullish and has slightly intensified. The total number of open Long positions is now 238,000 versus 103,000 Short positions. The European currency at this time continues to increase, which is in line with COT reports, but at the same time the number of Long positions is almost two and a half times higher than the number of Short positions. The possibilities of a euro uptrend have been rising steadily over the last few months alongside the currency itself, but it was not always supported by the news and data. After a long downturn, the situation remains favorable for the euro, so its outlook remains bullish, at least while the ECB keeps raising its interest rate by 0.50%.
US and EU economic calendar:
There are no important data releases in both the US and the EU today.
Outlook for EUR/USD:
Traders can open short positions if EUR/USD bounces off 1.0941 or closes below the trend channel on the H4 chart targeting 1.0869 and 1.0750. New long positions can be opened if EUR/USD closes above 1.0941 on the H4 chart with 1.1000 and 1.1150 being targets.
