US Dollar, EUR/USD, GBP/USD, Technical Analysis, Retail Trader Positioning – IGCS Update
- US Dollar (DXY Index) eyeing worst week since November 2022
- Retail traders responded by shorting EUR/USD and GBP/USD
- Is this a sign that the Euro and British Pound might rally next?
The US Dollar has taken a turn for the worst against its major counterparts of late. On Wednesday, the DXY Dollar index dropped -1.08 percent in the worst single-day decline since early January. At -1.67%, this week is shaping up to be the worst since November. In response, retail traders have responded by increasing EUR/USD and GBP/USD bearish bets. This can be seen by looking at IG Client Sentiment (IGCS). IGCS tends to function as a contrarian indicator. With that in mind, could further pain be in store for the US Dollar?
EUR/USD Sentiment Outlook - Bullish
The IGCS gauge shows that about 26% of retail traders are net-long EUR/USD. Since most are biased to the downside, this suggests that the Euro may rise ahead. This is as upside positioning declined by 31.21% and 50.08% compared to yesterday and last week, respectively. With that in mind, the combination of overall and recent changes offers a stronger bullish contrarian trading bias.
Daily Chart
On the daily chart, EUR/USD has closed at a new high for this year as well as achieving the strongest exchange rate since March 2022. While confirmation is lacking, the push higher has exposed the 38.2% Fibonacci extension level at 1.1231. Further gains would open the door to facing highs from February 2022. Otherwise, a turn lower places the focus on a near-term rising trendline from June.
GBP/USD Sentiment Outlook - Bullish
The IGCS gauge reveals that about 29% of retail traders are net-long GBP/USD. Since most traders are biased lower, this hints prices may continue rising. This is as downside exposure increased by 5.02% and 32.14% compared to yesterday and last week, respectively. With that in mind, the combination of overall positioning and recent changes in exposure offers a stronger bullish contrarian trading bias.
Daily Chart
The British Pound closed at its strongest level against the US Dollar since April 2022. That has brought GBP/USD to the 1.3 inflection point, which held as key resistance. Confirming a push above this price exposes late-March 2022 highs. In the event of a turn lower, keep a close eye on the broader rising trendline from September.
--- Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
