Euro Outlook:

• Both EUR/JPY and EUR/USD rates are working on daily bullish outside engulfing bars, a potential hint that a near-term bottom has been reached.
• Meanwhile, EUR/GBP rates are going nowhere fast, as both the British Pound and the Euro have traded in tandem in recent days.
• According to the IG Client Sentiment Index, EUR/GBP rates have a mixed bias, EUR/JPY rates have a bullish bias, and EUR/USD rates have a bearish bias.

A Moment of Reprieve

Pressure is off of the Euro at the moment as the a drop in US Treasury yields and a modest rebound in US equities is helping firm up risk appetite. Two of the major EUR-crosses, EUR/JPY and EUR/USD rates, are carving out bullish outside engulfing bars on the daily chart, suggesting that a near-term bottom is being established. Meanwhile, with both the British Pound and the Euro trading in tandem in recent days, EUR/GBP rates have been steadily trading sideways.

Read more: Central Bank Watch: BOE & ECB Interest Rate Expectations Update

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 1)

EUR/USD rates remain within the confines of a descending channel in place since February. Momentum indicators retain their bearish tone. The pair is below its daily 5-, 8-, 13-, and 21-EMA envelope, which remains aligned in bearish sequential order. Daily MACD is holding flat while below its signal line, and daily Slow Stochastics are holding just below their median line. However, a bullish outside engulfing bar on the daily timeframe suggests that a near-term bottom is being established that could signal another run up towards parity. Another hot US inflation report this week could derail any technical evidence of a rebound, however.

IG Client Sentiment Index: EUR/USD Rate Forecast (October 11, 2022) (Chart 2)

EUR/USD: Retail trader data shows 59.42% of traders are net-long with the ratio of traders long to short at 1.46 to 1. The number of traders net-long is 1.12% higher than yesterday and 17.07% higher from last week, while the number of traders net-short is 5.17% lower than yesterday and 4.14% lower 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.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.

EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 3)

As is the case in EUR/USD rates, EUR/JPY rates may be carving out a bullish outside engulfing bar on the daily timeframe that would suggest a near-term bottom is being established. The pair remains within the confines of a potential bearish rising wedge dating back to March, and more recently, may have started to funnel into a symmetrical triangle since late-August.

Momentum remains mostly tilted bullish, with the pair above its daily 5-, 8-, 13-, and 21-EMAs, and the EMA envelope back in bullish sequential order. Daily MACD is trending lower but remains above its signal line, while daily Slow Stochastics are flat just below overbought territory.

A return to the October high at 144.09 isn’t out of the question. However, with USD/JPY rates also above 145.00, traders should be aware of the risk of intervention by the Japanese Ministry of Finance, which could send EUR/JPY rates sharply lower quickly, if only temporarily.

IG Client Sentiment Index: EUR/JPY Rate Forecast (October 11, 2022) (Chart 4)

EUR/JPY: Retail trader data shows 24.76% of traders are net-long with the ratio of traders short to long at 3.04 to 1. The number of traders net-long is 7.09% lower than yesterday and 34.50% lower from last week, while the number of traders net-short is 4.56% lower than yesterday and 9.94% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.

EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (October 2021 to October 2022) (CHART 5)

EUR/GBP rates have stabilized in recent days the descending trendline from the 2008 and 2016 highs. Bearish momentum appears to have faded now that the pair is back above its daily EMA envelope, which is in bullish sequential order. Daily MACD is declining but remains above its signal line, while daily Slow Stochastics are on the cusp of emerging from oversold territory. As noted last week, “resistance lies above at 0.8851 (the 50% Fibonacci retracement of the 2020 high/2022 low range) and near 0.9004 (the descending trendline from the 2008 and 2017 highs as well as the 61.8% Fibonacci retracement of the 2020 high/2022 low range).”

IG Client Sentiment Index: EUR/GBP Rate Forecast (October 11, 2022) (Chart 6)

EUR/GBP: Retail trader data shows 49.52% of traders are net-long with the ratio of traders short to long at 1.02 to 1. The number of traders net-long is 6.87% higher than yesterday and 5.78% higher from last week, while the number of traders net-short is 4.80% lower than yesterday and 16.54% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/GBP prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.

— Written by Christopher Vecchio, CFA, Senior Strategist