ECB reveals anti-fragmentation measures – Setups for EUR/GBP, EUR/JPY, EUR/USD
- The euro reversed its losses the day after details of the ECB’s anti-fragmentation measures were revealed.
- The EUR/JPY and EUR/GBP rates are still in bullish breakout territory, while EUR/USD rates stay range limit.
- By the IG Customer Opinion Index, EUR/JPY and EUR/USD rates have bearish biases while EUR/GBP rates have a mixed bias.
ECB’s new plan unveiled
June was a bumpy month for the Euro, trading in ranges around and north of +/-4% against its major peers. Why? At first, it was the European Central Bank’s June policy meeting that spooked investors into believing that a eurozone debt crisis might be imminent.
So the board of governors had an emergency meeting less than a week later to appease eurozone sovereign bond markets. As in the early and mid 2010s, peripheral bond yields, particularly those of Greece and Italy, began to deviate rapidly from their central counterparts (Dutch, French and German).
Details of how the ECB plans to prevent spreads from widening again have now emerged. According to Reuters, based on conversations with ECB policymakers at their annual conference in Sintra, Portugal, the ECB will take proceeds from maturing Dutch, French and German debt and buy Greek debt, Italian, Portuguese and Spanish. Yes, the PIGS are back.
It is too early to tell whether the ECB’s plan will work or not. But for now, markets are taking the news kindly: the euro reversed its losses on the session, erasing some of its losses over the past few days. Nonetheless, EUR/JPY and EUR/GBP rates remain on an upside breakout trajectory, while EUR/USD rates continue to trade in the middle of a range widened since late April.
EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 1)
EUR/USD rates broke out of a short-term ascending triangle to the downside earlier this week, but found support in a familiar region around 1.3049/97, range support over the past two months. It is quite true that, despite the volatility of the past few days, the range in place since the end of April continues to define the evolution of prices. EUR/USD rates are below their daily 5-, 8-, 13-, and 21-EMA, and the envelope EMA is in bearish sequential order. The daily MACD is again trending lower below its signal line, while the daily Slow Stochastic has fallen below its middle line. Nevertheless, as stated last week, “Range trading remains the preference until support around 1.0349/97 breaks lower or resistance around 1.0757/1.0806 is breached at the rise”.
IG Customer Confidence Index: EUR/USD Rate Forecast (June 30, 2022) (Chart 2)
EUR/USD: Retail trader data shows that 70.26% of traders are net long with a ratio of long to short traders of 2.36 to 1. The number of net long traders is 8.51% higher than yesterday’s and 8.11% higher than last week, while the number of net-short traders is 11.09% lower than yesterday and 0.45% lower than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that EUR/USD prices may continue to decline.
Traders are sharper than yesterday and last week, and the combination of current sentiment and recent shifts gives us a stronger contrarian EUR/USD-bearish trading bias.
EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 3)
Last week it was noted that “a return to the 2022 high at 144.25 seems likely”, which happened last Tuesday. But no breakout occurred as the pair continued to hold within the confines of an ascending triangle that has been carved out from the March low. The momentum is slightly less bullish, with the pair below its daily 5, 8, and 13 EMAs, but the envelope EMA is in bullish sequential order. The daily MACD is trending lower albeit above its signal line, while the daily Slow Stochastic straddles overbought territory. An attempt to break up above 144.25 could still be considered.
IG Client Sentiment Index: EUR/JPY rate forecast (June 30, 2022) (chart 4)
EUR/JPY: Retail trader data shows 29.94% of traders are net long with a ratio of short to long traders of 2.34 to 1. The number of net long traders is 3.74% higher than yesterday’s and 13.45% higher than last week, while the number of net-short traders is 6.39% lower than yesterday and 12.36% lower than last week.
We generally take a contrary view to the sentiment of the crowds, and the fact that traders are net short suggests that EUR/JPY prices may continue to rise.
Still, traders are less net-short than yesterday and compared to last week. Recent shifts in sentiment warn that the current EUR/JPY price trend may soon reverse lower despite traders remaining net short.
EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to June 2022) (CHART 5)
EUR/GBP rate posted a major bullish reversal today, with the wick of a daily hammer candle piercing each of the daily EMAs of 5, 8, 13 and 21. Notably, the pair found support at former descending channel resistance in the process, reaffirming the prospect that an upside breakout is underway. So overall, when looking at closing prices, nothing has really changed: EUR/GBP rates continue their slow and steady upward move. Momentum indicators remain inclined bullish, with the daily MACD rising above its signal line, while the daily Slow Stochastic has stabilized around its middle line. It remains only “one Slow and steady grind towards the 38.2% Fibonacci retracement of the 2020 high/2022 low range at 0.8698” is still in the boxes.
IG Client Sentiment Index: EUR/GBP rate forecasts (June 30, 2022) (chart 6)
EUR/GBP: Retail trader data shows 63.91% of traders are net long with a ratio of long to short traders of 1.77 to 1. The number of net long traders is 13.68% higher than yesterday’s and 5.47% lower than last week, while the number of net-short traders is 23.27% lower than yesterday and 3.56% lower than this week last.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that EUR/GBP prices may continue lower.
Positioning is longer than yesterday but shorter since last week. The combination of current sentiment and recent shifts gives us another mixed EUR/GBP trading bias.
— Written by Christopher Vecchio, CFA, Senior Strategist