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EUR/USD Breaks Out; Retail FX Remains Net-Short Ahead of Draghi

EUR/USD Breaks Out; Retail FX Remains Net-Short Ahead of Draghi

2016-02-03 18:15:00
David Song, Currency Strategist
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Talking Points:

- EUR/USD Breaks Out; Retail FX Remains Net-Short Ahead of Draghi Comments.

- GBP/USD Squeezes Higher- Bullish Formation Remains in Play Ahead of BoE.

- USDOLLAR Breaks Down as Mixed Data Continues- Fed’s Dudley Highlights Dovish Outlook.

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EUR/USD

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD especially as the European Central Bank (ECB) keeps the door open to further embark on its easing cycle, but the failure to retain the range-bound price action may highlight a larger recovery especially as the Relative Strength Index (RSI) breaks out of the downward trend carried over from back in December.
  • With ECB President Mario Draghi scheduled to speak on Thursday, dovish comments from the central bank head may dampen the appeal of the Euro, but the single-currency may continue to follow broader risk trends as market sentiment deteriorates.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains short EUR/USD since February 1, but the ratio appears to be quickly working its way back towards recent extremes as it slips to -1.58, with 39% of traders now long.

GBP/USD

GBP/USD Daily Chart
  • GBP/USD may continue to squeeze higher over the coming days as the RSI breaks out of the bearish formation from back in May, with the oscillator carving out a near-term series of higher highs & lows.
  • Even though the Bank of England (BoE) is widely expected to retain its current policy, another 8 to 1 split along with increased concerns of overshooting the inflation-target on a longer-time horizon may generate a larger rebound in GBP/USD as it fuels interest rate expectations.
  • Will keep a close eye on the topside targets, with the first hurdle coming in around 1.4620 (50% expansion) to 1.4660 (50% retracement), followed by former-support around 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion).

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USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12116.89

12241.01

12115.79

-0.95

275.63%

EUR/USD Breaks Out; Retail FX Remains Net-Short Ahead of Draghi USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR stands at risk of facing additional headwinds ahead of the highly anticipated U.S. Non-Farm Payrolls (NFP) report as the ISM Non-Manufacturing survey highlights a slowing recovery, while New York Fed President William Dudley strikes a dovish outlook for monetary policy ahead of the next interest rate decision on March 16.
  • Will keep a close eye on fresh comments from Cleveland Fed President Loretta Mester, a 2016-voting member on the Federal Open Market Committee (FOMC), as market participants scale back bets for a rate-hike in the first-half of 2016.
  • Failure to hold above former resistance around 12,176 (78.6% expansion) to 12,219 (November high) may spur a move back towards 12,049 (78.6% retracement) to 12,082 (61.8% expansion).
DailyFX Calendar

Read More:

Silver and Platinum Price Action Not Supporting Gold Fervor

USD/CAD Technical Analysis: CAD Bulls Likely In Charge below 1.4325 (Levels)

COT-Big Increase in Net Long Position for Crude Oil Trend Followers

USD/JPY-Don’t Forget about the 26 Year Trendline

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--- Written by David Song, Currency Analyst

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

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