News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/ADSC4sIHrP https://t.co/eaA8ZI6DVu
  • Chinese property development company Sinic Holdings (2103) - Down 87%...@DailyFXTeam #contagion #Evergrande https://t.co/h5mfwqGASZ
  • 🇪🇸 Balance of Trade (JUL) Actual: €-1.60B Previous: €-0.98B https://www.dailyfx.com/economic-calendar#2021-09-20
  • Heads Up:🇪🇸 Balance of Trade (JUL) due at 08:00 GMT (15min) Previous: €-0.98B https://www.dailyfx.com/economic-calendar#2021-09-20
  • Fitch on China Property Developers - View will turn negative if sales in H2 21 fall below that achieved in H2 19 and/or if sharp fall follows through to H1 22 - Government policies in sector remain tight and show no sign of imminent loosening
  • Slippage can be a common occurrence in forex trading but is often misunderstood. Understanding how forex slippage occurs can enable a trader to minimize negative slippage, while potentially maximizing positive slippage. Learn about FX slippage here: https://t.co/Blrl0uF2Ct https://t.co/B0Y3XJhkRS
  • Key levels in forex tend to draw attention to traders in the market. These are psychological prices which tie into the human psyche and way of thinking. Learn about psychological levels here: https://t.co/8A1QhwMVKo https://t.co/1xhewkdV21
  • (USD Weekly Tech) US Dollar Dominant Uptrend Back In Focus: EUR/USD, USD/JPY, NZD/USD, USD/CHF https://www.dailyfx.com/forex/technical/article/special_report/2021/09/20/US-Dollar-Dominant-Uptrend-Back-In-Focus-EURUSD-USDJPY-NZDUSD-USDCHF.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/IpwzBGCi7P
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/qv8keXFzHZ
  • Join @IlyaSpivak at 22:00 EST/2:00 GMT for his cross-market weekly outlook webinar. Register here: https://t.co/MKGHc9ae64 https://t.co/JMlT0Wn3DK
EUR/USD Still Susceptible to Larger Pullback as RSI Divergence Remains

EUR/USD Still Susceptible to Larger Pullback as RSI Divergence Remains

David Song, Strategist

EUR/USD Rate Talking Points

EUR/USD struggles to preserve the advance following the European Central Bank’s (ECB) first meeting for 2021 as the US Dollar appreciates on the back of waning investor confidence, and the exchange rate remains susceptible to a larger pullback as long as the Relative Strength Index (RSI) tracks the downward trend carried over from December.

Advertisement

EUR/USD Still Susceptible to Larger Pullback as RSI Divergence Remains

EUR/USD continues to hold above the 50-Day SMA (1.2103) as the ECB retains the current course for monetary policy, and it seems as though the Governing Council will rely on its current tools to support the Euro Area as the central bank pledges to carry out the EUR 1.850 trillion pandemic emergency purchase programme (PEPP)until at least the end of March 2022 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over.

Nevertheless, it seems as though the ECB will continue to endorse a dovish forward guidance in 2021 as President Christine Lagarde and Co. stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner,” and current market themes may keep EUR/USD afloat as the Federal Reserve’s balance sheet climbs to a fresh record high in January.

In turn, the pullback from the monthly high (1.2350) may turn out to be an exhaustion in the bullish price action rather than a change in trend like the behavior seen in late 2020, and the US Dollar may continue to reflect an inverse relationship with investor confidence as long as the Federal Open Market Committee (FOMC) remains on track to increase its “holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.

Image of IG Client Sentiment for EUR/USD rate

At the same time, the tilt in retail sentiment looks poised to persist going into the FOMC interest rate decision on January 27 as traders have been net-short EUR/USD since November, with the IG Client Sentiment report currently showing 41.60% of traders net-long the pair as the ratio of traders short to long stands at 1.40 to 1.

The number of traders net-long is 18.20% higher than yesterday and 11.74% lower from last week, while the number of traders net-short is 4.26% higher than yesterday and 5.34% higher from last week. The decline in net-long position comes as EUR/USD struggles to retain the advance following the ECB meeting, while the rise in net-short interest has fueled the crowding behavior as 44.25% of traders were net-long the pair last week.

With that said, key market themes may sway EUR/USD going into the Fed rate decision as the US Dollar still reflects an inverse relationship with investor confidence, but the exchange rate remains susceptible to a larger correction as long as the Relative Strength Index (RSI) tracks the downward trend established in December.

EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the EUR/USDcorrection from the September high (1.2011) proved to be an exhaustion in the bullish price action rather than a change in trend following the string of failed attempts to close below the 1.1600 (61.8% expansion) to 1.1640 (23.6% expansion) region, with the Relative Strength Index (RSI) highlighting a similar dynamic as it broke out of the downward trend carried over from the end of July to recover from its lowest readings since March.
  • The break/close above the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region pushed EUR/USD to a fresh yearly highs throughout December, with the exchange rate taking out the 2020 high (1.2310) during the first week of January.
  • However, EUR/USD has snapped the monthly opening range following the failed attempt to test the April 2018 high (1.2414), with the exchange rate still susceptible to a larger pullback as the RSI continues to track the downward trend established in December.
  • Failure to hold above the Fibonacci overlap around 1.2140 (50% retracement) to 1.2370 (61.8% expansion) may push EUR/USD back below the 50-Day SMA (1.2081) as it brings the 1.2080 (78.6% retracement) region back on the radar, with the next region of interest coming in around 1.2010 (100% expansion).

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

DISCLOSURES