EUR/USD Risks Further Losses as COT Points to Stretched Positioning
- EURUSD vulnerable as sentiment pulls back from extremes- Key support 1.1128
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Technical Outlook:EURUSD reversed off Fibonacci resistance earlier this month at the 1.618% extension of the advance off the yearly lows at 1.1285. The pullback is now testing a key near-term support confluence at ~1.1128 where the 61.8% retracement converges on former slope resistance. A break below this mark shifts the focus lower in the Euro with such a scenario targeting the median-line down around 1.1021. A breach / close above the monthly open at 1.1242 would be need to mark resumption of the broader up-trend.
Notes: A closer look at price action sees the pair trading within the confines of a descending pitchfork formation with the overnight rally catching resistance the median-line near 1.1172. From a trading standpoint, we’ll favor the short-side while below 1.1205 (near-term bearish invalidation) with a break of the weekly range lows targeting subsequent support objectives at 1.1075, 1.1050 & 1.1021.
- A summary of IG Client Sentiment shows traders are net-short EUR/USD- the ratio stands at -2.25 (30.8% of traders are)- bullish reading
- Retail has been net-short since April 18th; price has moved 5.3% higher since then
- Long positions are 12.8% lower than yesterday but 10.2% higher from last week
- Short positions are 2.1% higher than yesterday but 2.0% lower from last week
- Traders are more net-short than yesterday but less net-short from last week. The fact that the ratio has continued to come off the May extremes weakens the bullish signal and leaves the pair vulnerable for a pullback near-term
See how shifts in EUR/USD retail positioning are effecting market trends- Click here to learn more about IG Client Sentiment indicators!
A look at the most recent Commitment of Traders report (COT) further highlights an extreme in sentiment with large speculators at their most net-long positioning since 2013 as of last week. Note that the last two instances when large specs have approached these levels, the Euro has pulled back in subsequent weeks and suggests the risk remains for near-term weakness heading into the close of the month.
Relevant Data Releases
Other Setups in Play:
- NZD/USD Sentiment at Extremes Ahead of RBNZ- Levels to Know
- Loonie Slides as Crude Dives- USDCAD Recovery Eyes Resistance
- USDJPY Moment of Truth: Rally Attempts Breach of Key Slope Resistance
- Strategy Webinar: USD Majors in the Fed Aftermath- Yen Crosses in Focus
- Written by Michael Boutros, Currency Strategist with DailyFX
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.