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EUR/USD Risks Further Losses as COT Points to Stretched Positioning

EUR/USD Risks Further Losses as COT Points to Stretched Positioning

Michael Boutros, Strategist

Talking Points

EUR/USD Daily

EUR/USD Daily Chart

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.

EUR/USD 240min

EUR/USD 240min Chart

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.

EUR/USD Risks Further Losses as COT Points to Stretched Positioning
  • A summary of IG Client Sentimentshows 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!

EUR/USD COT Report

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.

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Relevant Data Releases

EUR/USD Risks Further Losses as COT Points to Stretched Positioning

Other Setups in Play:

- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex contact him at mboutros@dailyfx.com or Click Here to be added to his email distribution list.

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