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ECB Rate Statement Weakens EUR

January 25, 2024
Frank Cabibi

Today the ECB discussed interest rates going forward in regards to the impact on the economy and inflation. Here is what is why EUR is reacting the way it is and what could be in store for the currency from a demand stand point.

EdgeFinder Analysis

EURAUD is now at a +7 bullish score on the EdgeFinder, a slight tick lower than the previous days' scores of +8. The trend reading was the only category that changed as price moves lower today. The ECB decided to keep rates the same today with the anticipation of higher rates for longer.

Nothing new here but the only question that remains is how much the economy will suffer as a result of long term higher rates. The bank expects more slowing in GDP and growth over time. It does appear that rate hikes could be over for them, and the next likely move will be a rate cut at some point this or next year.

GBPNZD is still a strong bullish reading on the EdgeFinder at +11 but is now rejecting what is now a quadruple top on the 1D timeframe. If price continues to fall, it could catch support around a previous top around 2.059.

Pound was the only clear bullish reading from last week's COT report. Retail is also majority short this pair. Higher PMI numbers from the services and manufacturing sectors could be a good sign for pound optimism, however, price may be experiencing momentary pullback from hitting resistance.

A neutral score on the EU pair doesn't look very promising. However, PMI data yesterday helped shift the score away from a slight bearish reading to neutral. COT seems uninterested in both the euro and dollar from last week's report, while retail is mixed.

EURUSD is looking a bit oversold on the 1D timeframe after coming down to test a significant level of support around a double bottom in which could experience a bounce. Because of the neutral rating on the EdgeFinder, the pair may be more reliant on technical setups as we wait for PCE in the US on Friday.

Retail Spotlight

Seeing how retail is mostly short GBP and EUR, we can assume the contrarian signal which would be bullish. Meanwhile, CADCHF, USDCHF and EURCHF are the top most bought pairs from the crowd. We could also assume that these pairs are bearish.

Smart Money Spotlight

Here is the COT indicator which compares smart money and retail sentiment. It is designed to show a divergence or convergence in interest between the two parties. Ideally, traders would want to see an increase in COT net positioning and a continual decline in retail sentiment, and vice versa.

I use this to see where those patterns are happening. In the case for EURUSD, it seems that there is growing bullish sentiment from smart money and retail. However, retail is still leaning bearish while COT is bullish. The way to tell who is bearish or bullish is by checking which values are above or below 0%. Below 0% is bearish and above 0% is bullish.

Fundamental Spotlight

Unemployment claims also came out today in the US. Results were worse than expected as more jobless people were reported than last month. This led to a -1 in the Initial Jobless Claims category and a 0 for overall Labor Market Score for SPX500 (US indices).

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