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EUR/USD Carves Bearish Series Amid Waning Bets for ECB ’Taper Tantrum’

EUR/USD Carves Bearish Series Amid Waning Bets for ECB ’Taper Tantrum’

David Song, Strategist

Talking Points:

- AUD/USD Snaps String of Lower-Highs Ahead of Australia Employment Report.

- EUR/USD Carves Bearish Series Ahead of ECB Minutes Amid Waning Bets for Imminent ‘Taper Tantrum.’

- Sign Up for the DailyFX Trading Webinars for an opportunity to discuss potential trade setups.

DailyFX Table
TickerLastHighLowDaily Change (pip)Daily Range (pip)

AUD/USD snaps the string of lower-highs from earlier this month, with the pair at risk of staging a larger rebound as the Australian economy is expected to add another 20.0K jobs in July.

A further improvement in labor market dynamics may foster a bullish reaction in AUD/USD as it encourage the Reserve Bank of Australia (RBA) to adopt a hawkish tone at the next meeting on September 5. In turn, AUD/USD may exhibit a more bullish behavior over the coming months especially as the pair largely holds above the 2016-range.

However, Governor Philip Lowe and Co. appear to be in no rush to lift the cash rate off of the record-low as ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.’ As a result, AUD/USD remains vulnerable to the cautious remarks coming out of the RBA, and central bank officials may continue to toughen the verbal intervention on the local currency as ‘wage growth remains low and this is likely to continue for a while yet.’

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Topside targets are coming back on the radar for AUD/USD as it appears to be turning around ahead of channel support; the Relative Strength Index (RSI) seems to be highlighting a similar dynamic as it threatens the bearish formation carried over from late-July.
  • Despite closing below the 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion) region, AUD/USD may work its way back towards the Fibonacci overlap around 0.7930 (50% retracement) to 0.7940 (61.8% retracement) as it clings to channel support, with the next topside hurdle coming in around 0.8020 (38.2% retracement) followed by the 2017-high (0.8066).
TickerLastHighLowDaily Change (pip)Daily Range (pip)

EUR/USD struggles to hold its ground ahead of the European Central Bank (ECB) meeting minutes, with the pair at risk for further losses amid narrowing bets for an imminent shift in monetary policy.

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According to Reuters, ECB President Mario Draghi intends to stick with the theme of ‘Fostering a Dynamic Global Economy’ at the Fed Economic Symposium in Jackson Hole, Wyoming, and will refrain from commenting on the monetary policy outlook as the Governing Council is on course to decide the fate of the quantitative easing (QE) program in autumn. As a result, the Euro may continue to consolidate over the near-term as it fails to fill the gap from January-2015 (1.2000 down to 1.1955).

Nevertheless, the shift in EUR/USD behavior may continue to unfold in the second-half of 2017 as a growing number of ECB officials adopt an improved outlook for the monetary union and show a greater willingness to gradually move away from the easing-cycle. In turn, the account of the monetary policy meeting from July 20 may spark a bullish reaction in the single-currency should the fresh rhetoric coming out of the Governing Council boosts speculation for a ‘taper tantrum.’

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD may face a narrowing range as the 1.1670 (50% retracement) region continues to offer support, but failure to fill-in the gap from January-2015 (1.2000 down to 1.1955) may generate a larger pullback in EUR/USD especially as the pair initiates a series of lower highs & lows.
  • Keeping a close eye on the Relative Strength Index (RSI) as it comes up against trendline support, with the oscillator at risk of flashing a bearish trigger; may see price also test the bullish formation carried over from earlier this year as the pair extends the decline from the August-high (1.1910) and slips to fresh monthly lows.
  • First downside area of interest comes in at 1.1580 (100% expansion) followed by the Fibonacci overlap around 1.1480 (78.6% expansion) to 1.1500 (78.6% expansion).

Retail Sentiment

Retail Sentiment

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  • Retail trader data shows 33.6% of traders are net-long AUD/USD with the ratio of traders short to long at 1.98 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74551; price has moved 5.7% higher since then. The number of traders net-long is 8.8% lower than yesterday and 9.7% higher from last week, while the number of traders net-short is 7.4% higher than yesterday and 8.2% lower from last week.
  • Retail trader data shows 35.7% of traders are net-long EUR/USD with the ratio of traders short to long at 1.8 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06524; price has moved 9.9% higher since then. The percentage of traders net-long is now its highest since May 01 when EUR/USD traded near 1.09106. The number of traders net-long is 19.2% higher than yesterday and 24.1% higher from last week, while the number of traders net-short is 4.5% lower than yesterday and 12.0% lower from last week.
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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.