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Euro has rallied nearly 4% off the yearly lows with the advance now approaching the July highs. While the broader risk remains weighted to the topside, we’re looking for a near-term pullback to offer favorable entries. Here are the updated targets and invalidation levels that matter on the EUR/USD charts this week.

EUR/USD Daily Price Chart

EUR/USD Price Chart - Daily

Technical Outlook: In my previous EUR/USD Technical Outlook we noted that although price was vulnerable for a near-term pullback, “Seasonal tendencies (heading into September) favor Euro strength and the focus remains weighted to the topside in price while above 1.1510/29.” EUR/USD marked registered a low at 1.1526 last week before rebounding higher with the advance now trading just below targeted resistance at the 38.2% retracement / July high at 1.1780/91.

Interim daily support rests with the 100-day moving average at ~1.1665 with broader bullish invalidation down at the monthly open at 1.1595. A breach above this threshold targets the June highs / pitchfork resistance at 1.1850/65- look for a bigger reaction there.

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EUR/USD 240min Price Chart

EUR/USD Price Chart - 240min

Notes: A closer look at Euro price action shows a clear break of the weekly opening-rangeand leaves the risk weighted to the topside into the close of the week. A modified pitchfork extending off the August / September lows further highlighting the 1.1780/91 near-term resistance barrier- a breach / close here is, “still needed to fuel the next ‘leg’ higher in price.

Initial support rests at 1.1722 with near-term bullish invalidation now raised to 1.1654/64. A topside breach above the 1.1850 resistance target eyes subsequent topside objectives at the 200-day moving average at ~1.1947 and the yearly open at 1.2005.

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Bottom line: The focus remains higher in price while within this formation and we’ll favor fading weakness targeting a topside breach of the median-line. From a trading standpoint, look to reduce long exposure heading into 1.1780/91 with a pullback likely to offer more favorable entries ahead of the breach. IF price breaks lower, we’re neutral with a move sub-1.1510 needed to mark resumption of the broader downtrend. Keep in mind there’s major event-risk on tap next week which is likely to fuel further EUR/USD volatility.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

EUR/USD Trader Sentiment

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  • A summary of IG Client Sentiment shows traders are net-short EUR/USD - the ratio stands at -1.91 (34.3% of traders are long) – bullishreading
  • Traders have remained net-short since August 21st; price has moved 2.8% higher since then
  • Long positions are20.2% higher than yesterday and 22.3% lower from last week
  • Short positions are 30.2% higher than yesterday and 13.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Euro prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias from a sentiment standpoint.

See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!

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Relevant EUR/USD Economic Data Releases

EUR/USD Economic Calendar

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com