EUR/USD Price Outlook:
- The EUR/USD fundamental landscape stands relatively unchanged despite recent losses
- Technicals hint the pair may push higher in the days ahead after a recent downtrend was broken
- IG client sentiment reveals retail traders are net-short EUR/USD, which may suggest the pair will climb higher
US Dollar Price Outlook: EUR/USD Breaks Downtrend, Can it Rally?
The US Dollar enjoyed a bout of strength to begin the year as EUR/USD endured a pullback toward support. While the brief reversal in price was hard to deny, it can be argued there were few changes in the underlying fundamental landscape to drive such a move. To be sure, a decline in risk appetite and damaged sentiment likely played a role as investors piled into the safety of the Greenback, but with sentiment repaired USD could face renewed pressure.
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Further still, the technical EUR/USD landscape looks encouraging. While recent weakness may have spooked some bulls, it might be viewed as mere consolidation before a continuation higher by others. To that end, the series of higher-highs and higher-lows dating back to March remains intact and EUR/USD trades above a plethora of longer-term moving averages.
EUR/USD Price Chart: Weekly Time Frame (February 2018 – February 2021)
Much of the same can be seen on the daily chart. Trading narrowly beneath the 50-day moving average, gold’s recent breakout of the descending channel may allow it to take aim at overhead resistance. An imminent MACD crossover beneath the 0 line with price above the 200 exponential moving average lends further bullish evidence.
EUR/USD Price Chart: 4 – Hour Time Frame (January 2020 – February 2021)
Initial areas of interest might reside at the January 2021 high near 1.2349 followed by resistance slightly higher around 1.2400. Northward still resides a series of horizontal trendlines that may look to keep price contained so trimming exposure at – or before - these levels might be prudent.
Conversely, the area slightly beneath 1.2000 might serve as an invalidation zone that if price were to breach before pushing higher, could undermine the shorter-term trade setup altogether. Another risk is continued consolidation around the 50-day simple moving average.
| Change in | Longs | Shorts | OI |
| Daily | 14% | -15% | 5% |
| Weekly | -2% | -13% | -5% |
That said, EUR/USD appears tilted to the topside and IG client sentiment data reveals retail traders remain net-short the currency pair. Since we typically take a contrarian view to crowd sentiment, retail positioning might suggest EUR/USD will climb higher in the days ahead. Follow @PeterHanksFX on Twitter for updates on this pair.
--Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
