The European Central Bank (ECB) is concerned about the current level of inflation in the Eurozone and is indicating that it may raise interest rates by an additional 200 basis points in the coming months to address the issue. This move could take the central bank’s rate to 4.5%. Last year, the ECB’s deposit facility was at 0%.
Powell’s Testimony and US Jobs Report to Provide Clarity on Fed’s Interest Rate Stance
The main event of the week is Jerome Powell’s semi-annual testimony to the Senate Banking Committee, which will provide insight into the Federal Reserve’s course of action to reduce inflation. The Fed’s terminal rate has been pushed higher this year, from a market level of 4.8% to just under 5.5%. Additionally, the latest US Jobs Report will be released on Friday, providing further clarity on the Fed’s interest rate stance.
EUR/USD Forms Bearish Flag Formation
EUR/USD has been steadily rising over the past eight trading sessions, forming a mini-series of higher highs and higher lows. However, this price action has formed a bearish flag formation, indicating that a break lower may be imminent. Initial support is seen around the recent double low near the 1.0530 level, followed by 1.0500 and 1.0483.
Retail Trader Data Shows Net-Short Bias for EUR/USD
Retail trader data indicates that 42.94% of traders are net-long, with the ratio of traders short to long at 1.33 to 1. The number of traders net-long has decreased by 11.40% from yesterday and 20.44% from last week, while the number of traders net-short has increased by 28.27% from yesterday and 30.40% from last week.
The combination of current sentiment and recent changes suggests a stronger EUR/USD-bullish contrarian trading bias, as traders are more net-short than they were yesterday and last week.