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Trading Into Euro's Interest Rate Decision

October 23, 2023
Frank Cabibi

ECB will report the latest interest rate decision for the euro this Thursday. EUR pairs are experiencing a lot of volatility this week, so we will take a deep dive into the fundamental impact of what this decision means for the currency.

EdgeFinder Analysis

EJ is a top bullish rating on our setups page. At +9, it is the strongest reading currently on the EdgeFinder. With a helpful confirmation from COT and retail, the pair looks decisively bullish for the week. EUR beats JPY in just about every category except GDP growth which was stronger in Japan this quarter.

It is a different story for Japan, however, due to the differences in monetary policy. The ECB's ultra restrictive rate path has taken a toll on the economy in hopes for a stronger euro. And investors are seeing that when paired with the yen.

EURCHF saw a score flip from -2 to +2 on the EdgeFinder. This is helpful because price just bounced from a long term support level from September and October of last year. Price is coming up to resistance on the 1D timeframe around 0.95100s.

A break in this zone could lead price back up to the long term falling trend line. Thursday's decision is expected to be unchanged at 4.50%. The current policy is similar to the Fed's which is keeping rates higher for longer in hopes of compliance from inflation.

EURUSD is no long a strong bearish reading on the EdgeFinder. From -12 to -3, it seems that the pair is about to undergo another score flip. Retail is mixed likely due to uncertainty around the Fed and dollar strength, but this week could change things for the pair.

Smart money, however, has sold the USD and kept a bullish bias on EUR. Seasonality still suggests lower moves in the month of November, so this will be something to consider. Seeing the score go from a negative to a positive score might be a sign that the downtrend for EU is over.

Retail Spotlight

The top most bullish pairs seem to EURJPY, EURNZD and EURAUD. This is because retail is short on these assets. The only strong bearish reading on euro is EURCHF which is majority long at 89%.

Smart Money Tracker

The Smart Money Tracker overview shows that institutions are majority long indices, metals and EUR this week. The positional bias at the bottom shows how the net positioning is changing between two separate assets. It tracks the long % for both EUR and USD. So far, we've seen a steady decline in EUR positioning while a boost in USD. Although, last week's COT changed that.

Fundamental Spotlight

The short term interest rate forecast is not indicating any signs of another hike. This is likely due to European economies struggling from the already-restrictive policy. With high interest rates as it is, the currency is likely to stay at these levels for a longer period of time than originally planned. If even higher rates might spell recession, then current rates for the long haul is the next best option.

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