EUR/USD Analysis:
- FOMC Minutes dominate event risk as traders seek clarity on the Fed’s June 16 ‘hawkish surprise’
- Key technical levels to consider ahead of the minutes as bearish momentum wanes
- IG client sentiment remains net long hinting at bearish continuation
EUR/USD Seeks Directional Clues from FOMC Minutes
The EUR/USD pair (at the time of writing) reveals a doji candle during the London session as we head into the US open. The doji candle can be reflective of indecision in a market and right now appears to reveal a ‘wait and see’ approach to the FOMC minutes to be released later today.
Yesterday’s sharp move lower in the pair had market commentators joke about the FOMC minutes being released ahead of schedule. Treasury yields, the Dow Jones and S&P 500 dropped lower while the US dollar gained against its peers in a move consistent with a sudden ‘risk off’ narrative.
Market participants should receive clarity around the accelerated time frame of anticipated rate hikes in the US when the minutes are released later today.
For all market-moving data releases and events see the DailyFX Economic Calendar
Key Technical Levels to Watch for EUR/USD
The weekly chart frames price action from a long term point of view allowing greater insights into long term trends and developments. After posting a high at the start of the year, EUR/USD had been rather choppy, trading above and below the significant 1.2000 level.
However, price action currently rests on the 61.8% Fibonacci level (drawn from the 2018 high to 2020 low) with the ascending trendline in reach.
Chart prepared by Richard Snow, IG
The daily chart highlights the appearance of positive divergence in the RSI which may result in a slowdown in the current bearish momentum. Nevertheless, if the FOMC minutes confirm a more hawkish shift at the Fed, a move toward the ascending trendline (support) and the 1.1700 level remain on the radar.
Although hindsight is 20/20, previous inflection points on this chart presented technical analysts with potential clues before reversing. In January, the bearish engulfing formed at a time when the RSI presented negative divergence, signaling a potential move lower. Therefore, the possibility remains that we could see a move higher as a result of positive divergence currently witnessed on the RSI with a potential bounce off the 61.8% Fib level or trendline support.
EUR/USD Daily Chart
Chart prepared by Richard Snow, IG
Contrarian Indicator Suggests Potential Bearish Continuation
| Change in | Longs | Shorts | OI |
| Daily | -1% | 10% | 2% |
| Weekly | 66% | -47% | 1% |
EUR/USD: Retail trader data shows 60.45% of traders are net-long with the ratio of traders long to short at 1.53 to 1.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
The number of traders net-long is 3.90% higher than yesterday and 25.08% higher from last week, while the number of traders net-short is 8.56% lower than yesterday and 20.99% lower from last week.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
