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EUR/USD Price Outlook - Short-Term US Dollar Strength Pushes EUR/USD Lower

EUR/USD Price Outlook - Short-Term US Dollar Strength Pushes EUR/USD Lower

Nick Cawley, Strategist

EUR/USD Price, News and Analysis:

  • Short EURUSD benefits from additional carry.
  • EURUSD now eyes 50-day sma at 1.2090.

The recent EURUSD rally has derailed due to the greenback picking up a bid in early January. The consensus trade for 2021 was short US dollar on expectations that a Democratic victory would see the US dollar printing press active again, and while this may still happen, the greenback has picked up a bid in recent days. One reason behind the strength of the USD is the pick-up in longer-dated US Treasury bond yields, with the 10-year now quoted at 1.107%, a level last seen in late-February last year, while the closely-watched 2/10-year yield spread is currently at a near three-year high of just under 1%. The US 10-year also yields over 163 basis points more than the German (Bund) 10-year, giving the greenback a carry advantage over its Euro rival.

US Dollar Basket Daily Price Chart (June 2020 – January 11, 2021)

EUR/USD Price Outlook - Short-Term US Dollar Strength Pushes EUR/USD Lower

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The daily EUR/USD chart shows the recent bear move with the last four candlesticks producing lower highs and lower lows. The pair have also broken, and opened, below the 20-day simple moving average for the first time since very early November last year and while this remains the case, the 50-day sma currently at 1.2090 is the likely next level of support ahead of 1.2000. The pair are moving into oversold territory for the first time since early November and an uptick would see initial resistance off the 20-dsma around 1.2235 before a re-test of the recent high.

EUR/USD Daily Price Chart (June 2020 – January 11, 2021)

EUR/USD Price Outlook - Short-Term US Dollar Strength Pushes EUR/USD Lower

IG Retail trader data show41.53% of traders are net-long with the ratio of traders short to long at 1.41 to 1.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.

What is your view on EUR/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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