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Euro Outlook - EUR/USD Breakout But Sustained Rally May Prove Difficult

Euro Outlook - EUR/USD Breakout But Sustained Rally May Prove Difficult

Nick Cawley, Strategist

Euro (EUR/USD) Price, News, and Analysis:

  • EUR/USD hits a six-week high.
  • 10-year US Treasury-Bund yield spread narrows.

EUR/USD finally broke above 1.2000 yesterday with conviction and the move may see the pair set up a new short-term trading range. The move higher is being underpinned by the recent narrowing of the 10-year UST/Bund yield spread, helping to prop up the single currency. German 10-year yields, the Eurozone’s proxy, have drifted higher recently, but a sustained short-term rise may be difficult. The ECB will continue to keep monetary conditions loose for as long as is needed as covid-19 infection rates across Europe remain at elevated levels. While the vaccination program across Europe is picking up pace, the 7-day average new cases rate in Germany is just above 20k, while in France the latest data shows a much higher average rate of over 32k.

Euro Outlook - EUR/USD Breakout But Sustained Rally May Prove Difficult

The latest ECB policy announcement on Thursday should see the central bank confirm its commitment to an extended period of loose monetary policy, flushing the market with cheap money in order to rebuild the economy. The post-meeting press conference will be worth paying attention to, to see if the central bank tries to talk bond yields and the Euro lower by discussing the pace of bond purchases.

For all market-moving economic data and events, see the DailyFX Calendar.

The daily chart shows Monday’s strong break of multi-week resistance, and while further gains may be tempered, the old 1.2000 resistance level is set to turn supportive unless the ECB opens the liquidity taps further. It now looks likely that the pair will settle in a 1.2000 – 1.2243 range over the short term, although a re-test of support may occur with EUR/USD currently sitting in overbought territory (CCI).

IG Retail trader datashow 35.39% of traders are net-long with the ratio of traders short to long at 1.83 to 1. The number of traders net-long is unchanged than yesterday and 10.79% lower from last week, while the number of traders net-short is unchanged than yesterday and 6.25% 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.Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

EUR/USD Daily Price Chart (June 2020 – April 20, 2021)

Euro Outlook - EUR/USD Breakout But Sustained Rally May Prove Difficult

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.

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