EUR/USD Rate Talking Points
EUR/USD preserves the range from earlier this month as it failed to test the August low (1.1696) during the previous week, and current market conditions may keep the exchange rate afloat as the Relative Strength Index (RSI) continues to track the upward trend established in March.
EUR/USD Rate Approaches 2020 High as RSI Retains Upward Trend
EUR/USD retraces the pullback from the 2020 high (1.1916) even though the RSI showed a textbook sell signal last week, and recent price action suggests the move below 70 was indicative of a potential exhaustion in the bullish behavior rather than a change in trend as the oscillator bounces back from trendline support.
It remains to be seen if the RSI will bounce along trendline support like the behavior seen in July as the crowding behavior in the US Dollar persists, and the account of the European Central Bank (ECB) meeting may do little to derail the appreciation in EUR/USD as the Governing Council appears to be in no rush to alter the course for monetary policy.
It seems as though the ECB will retain the current policy throughout the remainder of the year as fiscal authorities implement the prepare to deploy the EUR 750B recovery fund, and more of the same from President Christine Lagarde and Co. may keep EUR/USD afloat as the crowding behavior in the US Dollar carries into August.
The IG Client Sentiment report shows retail traders have been net-short EUR/USD since mid-May, with the latest update showing 34.22% of traders net-long the pair as the ratio of traders short to long stands at 1.92 to 1. The number of traders net-long is 4.11% lower than yesterday and 8.47% higher from last week, while the number of traders net-short is 10.48% higher than yesterday and 5.07% higher from last week.
The recent decline in net-long position could be indicative of profit-taking behavior as EUR/USD approaches the 2020 high (1.1916), while the increase in net-short interest suggests the crowding behavior in the Greenback will persist even though the DXY index has plummeted more than 8% off the April highs.
With that said, current market conditions may EUR/USD afloat as the RSI continues to track the upward trend established in March, and the account of the ECB meeting may do little to derail the appreciation in the exchange rate if the central bank sticks to the same script.
Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss key themes and potential trade setups surrounding foreign exchange markets.
EUR/USD Rate Daily Chart
Source: Trading View
- Keep in mind, a ‘golden cross’ materialized in EUR/USD towards the end of June as the 50-Day SMA (1.1478) crossed above the 200-Day SMA (1.1125), with the moving averages extending the positive slopes into the second half of the year.
- At the same time, a bull flag formation panned out following the failed attempt to close below the 1.1190 (38.2% retracement) to 1.1220 (78.6% expansion) region in July, with the Relative Strength Index (RSI) helping to validate the continuation pattern as the oscillator bounced along trendline support to preserve the upward trend from March.
- However, the EUR/USD rally appears to have stalled ahead of the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region as the RSI slips below 70 and shows a textbook sell signal, but the pullback from overbought territory appears to have been indicative of a potential exhaustion in the bullish behavior rather than a change in trend as the oscillator bounces back from trendline support.
- The failed attempt test the August low (1.1696) has pushed EUR/USD back towards the Fibonacci overlap around 1.1810 (61.8% retracement) to 1.1850 (100% expansion), but need a break above the 2020 high (1.1916) to bring the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region on the radar.
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
