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EUR/USD Analysis
- EU ZEW economic sentiment ACT: 49.4
- U.S. Treasuries strengthen dollar.
- Bear flag poses downside threat to Euro bulls.
UNEXPECTED EURO AREA ZEW ECONOMIC SENTIMENT INDEX IMPROVEMENT
The German ZEW economic sentiment advance (see economic calendar below) lead the way to the overall Euro area print shift to almost double the December release. The Euro responded marginally positive post-release but heavily weighed down by rising U.S. Treasury yields and a robust dollar.
Source: DailyFX Economic Calendar
EURO FUNDAMENTAL BACKDROP
Higher U.S. Treasury yields across the curve bolstered the greenback this morning giving the dollar leg of most USD crosses a lift. Soaring crude prices have added to a hawkish Fed as inflationary pressures may be rising after an attack in the UAE, which could hurt supply. Fears of Omicron in China have resulted in several lockdowns throughout the country adding to supply chain disruptions. These factors should give the dollar the upper hand in the near term against the Euro as the central bank divergence between the Fed and ECB remains.
A sixth consecutive negative decline in European car sales registrations for the December period did not help the already fading Euro however, post-announcement price action reflects minimal price change on the pair leading up to the sentiment reading.
TECHNICAL ANALYSIS
EUR/USD DAILY CHART
Chart prepared by Warren Venketas, IG
The bear flag formation (blue) remains in play on the daily chart as EUR/USD prices continue to wade within the rising channel. The bear flag traditionally points to a bearish continuation but confirmation from a break below flag support (candle close) will be required to approve further downside.
The Relative Strength Index (RSI) favors upside momentum and with the potential of a bullish crossover (20-day EMA crossing above 50-day EMA) in process, the 1.1500 psychological level could be next. This being said, fundamentals firmly encourage the U.S. dollar at this point in time and should come into fruition in due course.
Resistance levels:
- 1.1500
- 100-day EMA (yellow)
- 1.1400
Support levels:
- 20/50-day EMA (purple/blue)
- 1.1186
IG CLIENT SENTIMENT DATA UNSURE
IGCS shows retail traders are currently marginally long on EUR/USD, with 56% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but the fact that traders are positioned roughly equally, there is currently no preferred directional bias.
| Change in | Longs | Shorts | OI |
| Daily | 1% | 6% | 3% |
| Weekly | -7% | -2% | -5% |
Contact and follow Warren on Twitter: @WVenketas
