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Euro Forecast: EUR/USD Bulls Eyes Key Resistance as US Dollar Loses Steam

Euro Forecast: EUR/USD Bulls Eyes Key Resistance as US Dollar Loses Steam

Justin McQueen,

EUR/USD Price Analysis & News

  • EUR Benefits as USD Loses Steam
  • Key Resistance in Focus
  • Client Signal Remains Bullish EUR/USD

As the USD continues to lose steam, the Euro remains among the key beneficiaries with the currency primed to test resistance at 1.1990-1.2000 following yesterday's break above the weekly high (1.1927). The US CPI beat did little for the greenback, which isn’t surprising given that not only is the increase predominantly due to base effects but also the Fed has stated on numerous occasions that they will overlook short term spikes in inflation and therefore has little implications for monetary policy at present.

In light of the recent squeeze of short EUR/USD positions, the question now is whether there is further fuel for a consistent rise. There is a sense now, that we have gone past peak bearishness in the Euro given that it has been well documented that Europe is lagging the Covid recovery with lockdowns extended and thus would have been largely reflected in the price. Going forward the theme will be about Europe playing catch up in the medium term, however, in the short run, I have a more tactical bias with a 1.1990 break to open the doors to 1.2026 (50% Fib of 2021 peak to 2021 bottom). On the downside, key support remains at 1.1855-60, in which topside momentum would likely be invalidated should we close below there.

Taking a look at the calendar, both ECB and Fed Chairs are scheduled to speak today, although the latter is unlikely to deviate away from comments made on Sunday, where Fed Chair Powell stated that the economy was at an inflection point. Elsewhere, sizeable option expiries could see spot rather sticky at 1.1950-60 with $1.1bln rolling off at the 10 am NY cut.

EUR/USD: Chart: Daily Time Frame

Source: Refinitiv

IG Client Sentiment Signals Remain Bullish EUR/USD

  • Retail trader data shows 38.87% of traders are net-long.
  • Ratio of traders short to long at 1.57 to 1.
  • The number of traders net-long is 4.94% lower than yesterday and 12.47% lower from last week, while the number of traders net-short is 2.47% lower than yesterday and 10.11% higher from last week.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.
  • Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.

Source: DailyFX, IG

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

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