EUR/GBP #34 | Trade Update 22:30:21 (UTC) Tue Aug 24, 2021 EUR/USD tries a three-day recovery after breaking through the March low (1.1704), but the minutes of the European Central Bank (ECB) meeting may undercut the recent gain, as the Governing Council seems on track to maintain current policy for the rest of the year. It remains to be seen whether the resurgence of COVID-19 cases will persuade the Federal Reserve to maintain its current monetary policy course, as the central bank abandons its original plan to convene in Jackson Hole, Wyoming, and more of the same from chair Jerome Powell and Co. may cause a bearish reaction in the US Dollar, as the Federal Open Market Committee (FOMC) continues to be hesitant to draw up a policy statement. The ECB's July meeting minutes are likely to reflect dovish forward guidance as the Governing Council braces for "a transitory period of moderately above target inflation," and President Christine Lagarde and Co. may seek to support the monetary union throughout the rest of the year as "the medium-term outlook for inflation remains subdued." Unable to defend While the March low (1.1704) presents a negative view for EUR/USD, as it breaks the wide range from earlier this year, a further drop in the exchange rate may exacerbate the retail mood tilt observed earlier this year. However, signs of a looming monetary policy shift could undermine the EUR/recent USD's recovery, as a growing number of Fed officials show an increased willingness to switch gears, and divergent monetary policy paths create headwinds for the Euro Dollar, as the European Central Bank (ECB) expects "purchases under the pandemic emergency purchase program (PEPP) over the current quarter to..." The Euro reaches a new weekly high (1.1765) ahead of the Kansas City Fed Economic Symposium, which the district bank announced will be held 'virtually' on Friday, August 27, and the change appears to be taming speculation for a material announcement, as "health conditions will prevent us from gathering in person at the Jackson Lake Lodge this year." The number of traders who are net long is down 2.55 percent from yesterday and down 4.20 percent from last week, while the number of traders who are net short is up 14.86 percent from yesterday and up 15.28 percent from last week. The decrease in net-long positions may result from profit-taking as EUR/USD approaches a new weekly high (1.1765), while the increase in net-short interest has helped relieve crowding, with 62.33 percent of traders net-long the pair last week. With that stated, EUR/USD may encounter headwinds ahead of the Fed symposium, as the ECB seems to follow a predetermined path, and the break of the March low (1.1704) presents a negative view for EUR/USD, as it breaks the wide range established earlier this year.
