EUR/USD Price Forecast:
- US Dollar weakness may persist as stimulus hopes linger and the Fed reassures accommodation
- IG client sentiment reveals retail traders are net-short EUR/USD, which may suggest the pair will climb higher
- Still, a nasty intraday reversal might see consolidation continue in the shorter-term
Euro Price Outlook: EUR/USD Edges Higher with Bullish Outlook Intact, For Now
The US Dollar enjoyed a bout of strength to begin the year as EUR/USD endured a pullback toward support around the 1.20 area. Renewed Dollar weakness has seen the pair recover somewhat allowing EUR/USD to snap the downtrend. Now with the Fed and ECB committed to remaining accommodative, the longer-term trend that has unfolded since March 2020 may be poised to continue.
That being said, there are threats to EUR/USD strength that should be considered. First and foremost is the staggering economic projections coming out of the United States. Should reality match estimates, the United States would handily outpace the Euro area in terms of recovery and growth – a theme that would likely give rise to US Dollar strength.
Another concern is risk aversion. US equities are encountering considerable turbulence in recent sessions as US Treasury yields continue to tick higher, prompting investors to reallocate funds as risk-free rates rise. If equity weakness were to gain steam and risk aversion spike, traders may flock to the Greenback in search of safety.
Together, the two fundamental possibilities pose a real threat to the continued uptrend of EUR/USD, but the technical outlook remains encouraging and further stimulus in the United States could see prolonged USD weakness. Thus, Dollar strength is not a foregone conclusion by any means and EUR/USD gains remain on the table.
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To that end, the technical landscape reveals an encouraging backdrop. While recent weakness may have spooked some bulls, it might be viewed as mere consolidation before a continuation higher by others. The pair remains above a plethora of longer-term moving averages and the series of higher highs and higher lows remains intact.
EUR/USD Price Chart: Daily Time Frame (September 2019 – February 2021)
At this stage maintaining prices above the February swing low near 1.1950 is vital for the longer-term technical outlook of the pair. If price breaks lower it would establish a series of lower lows and lower highs that could suggest the broader breakout is endangered. Nevertheless, a MACD crossover posted in mid-February beneath the 0 line and above the 200 day exponential moving average lends bullish evidence.
EUR/USD Price Chart: 4 – Hour Time Frame (October 2020 – February 2021)
Initial areas of interest might reside at the January 2021 high near 1.2348 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 the 200-period moving average on the 4 hour chart - near 1.2100 - might serve as early support. Since further consolidation is not out of the question, a retreat to the lower bound of the emerging ascending channel could materialize which might improve the risk-reward ratio of bullish exposure. A bearish breakdown through the range would constitute a significant technical downgrade and might open the door to further losses, making the area an important zone of invalidation.
| Change in | Longs | Shorts | OI |
| Daily | 0% | -10% | -3% |
| Weekly | -5% | 14% | 1% |
That said, EUR/USD appears tilted to the topside in the longer-term 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
