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EUR/USD Bull-Flag Take Shape While Retail FX Remains Net-Short

EUR/USD Bull-Flag Take Shape While Retail FX Remains Net-Short

David Song, Strategist

Talking Points:

- EUR/USD Bull-Flag Continues to Take Shape While Retail FX Remains Net-Short.

- USD/CAD Climbs to Fresh Yearly High- RSI Pushes Into Overbought Territory.

- USDOLLAR Risks Larger Correction as Subdued Wage Growth Drags on Fed Expectations.

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EUR/USD

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The advance following the European Central Bank (ECB) interest rate decision may foster a larger correction in EUR/USD especially as a bull-flag pattern appears to be taking shape, while the Relative Strength Index (RSI) breaks out of the bearish formation from back in August.
  • The long-term outlook for EUR/USD remains tilted to the downside as the ECB continues to push monetary policy into uncharted territory but, the pair may continue to retrace the decline from the October high (1.1494) amid the failed test of the 2015 low (1.0461), with the next topside region of interest coming in around 1.1090 (50% retracement).
  • Despite the meaningful rebound, the DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD following the ECB rate decision on December 3, with the ratio approaching recent extremes as it slips to -1.26 as 44% of traders are now long.

USD/CAD

USD/CAD Daily Chart
  • USD/CAD stands at risk for a further advance as it clears former resistance zones, while the RSI breaks out of the bearish formation from back in September and kicks into overbought territory; will wait for the oscillatory to move back below 70 for a near-term pullback.
  • With the Bank of Canada (BoC) largely endorsing a wait-and-see approach going into 2016, the ongoing decline in oil prices may encourage the central bank to further insulate the economy as Governor Stephen Poloz continues to gauge the rebalancing in the real economy.
  • Will keep a close eye on former-resistance zones for new support, with the next topside region of interest coming in around 1.3720 (78.6% expansion).

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12140.68

12158.34

12131.48

0.02

59.83%

EUR/USD Bull-Flag Take Shape While Retail FX Remains Net-ShortUSDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR may work its way back towards the top of its recent range as carves the opening monthly range above the former-resistance zones around 12,049 (78.6% retracement) to 12,082 (61.8% expansion), while the RSI preserves the bullish formation from back in August.
  • Even though the Federal Open Market Committee (FOMC) is widely expected to deliver its first hike in over a decade at the December 16 interest rate decision, the forward-guidance for monetary policy is likely to have influence on the greenback as market participants gauge the path for normalization.
  • Will retain a constructive outlook for the USDOLLAR but, may need the RSI to breakout of the bearish trend carried over from the previous month to see a more meaningful run at next topside objectives around 12,273 (161.8% expansion) to 12,296 (100% expansion).
EUR/USD Bull-Flag Take Shape While Retail FX Remains Net-Short

*As we approach the holidays and thus illiquid markets, it's worth reviewing principles that help protect your capital. We call these principles the "Traits of Successful Traders."

Three Factors Warn of Perfect Storm in FX Markets - Caution Advised

Read More:

EUR/USD 1.1000 Looks Big

USDOLLAR Bear Trap or Real Reversal?

USD/JPY Testing Uptrend Resistance- Key NFP Levels

AUD/JPY Rally Approaching Initial Resistance Hurdle

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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