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EUR/USD Retail FX Remain Net-Short; Bear Trap or Continuation?

EUR/USD Retail FX Remain Net-Short; Bear Trap or Continuation?

David Song, Strategist

Talking Points:

- Retail FX Crowd Remains Net-Short EUR/USD Post-ECB; Former Resistance in Focus.

- USDOLLAR Carves Bullish Inside-Day; Outlook Mired by Slowing U.S. Retail Sales.

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EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may make a more meaningful run at the February high (1.1375) as the pair breaks out of the range carried over from the previous month, while the European Central Bank (ECB) appears to have put a floor on interest rates as President Mario Draghi talks down expectations of lower borrowing-costs.
  • Even though the Governing Council implements more non-standard measures to further support the monetary union, the less-dovish forward guidance for monetary policy may open up the highs from back in 2015 amid the failure to close below near-term support around 1.0840 (61.8% retracement) to 1.0850 (78.6% expansion).
  • Will keep a close eye on the Relative Strength Index (RSI) as it appears to be carving a bullish formation, with the next topside region of interest coming in around 1.1375 (2016 high) to 1.1420 (23.6% retracement).
  • Despite the near-term breakout following the ECB meeting, the DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-short EUR/USD since March 10, with the ratio hitting an extreme in February as it slipped to -2.00.
  • Nevertheless, retail sentiment remains off of near-term extremes as it sits at -1.37, with 42% of traders currently long EUR/USD.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12004.5812012.3911964.620.2684.53%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR appears to carving a bullish inside-day ahead of the Federal Open Market Committee (FOMC) interest rate decision as the central bank is widely expected to maintain an upbeat outlook for the U.S. economy, and the greenback may face a larger rebound especially as the RSI appears to be turning around ahead of oversold territory.
  • Nevertheless, a 0.2% contraction in U.S. Retail Sales may dampen the appeal of the greenback and drag on interest-rate expectations as it undermines Fed expectations for a ‘consumer’ led recovery in 2016.
  • Ongoing closes above 11,951 (38.2% expansion) to 11,965 (23.6% retracement) may keep the USDOLLAR support ahead of the FOMC meeting as the central bank is widely expected to further normalize monetary policy throughout the year.

Read More:

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--- Written by David Song, Currency Analyst

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.