Technical Forecast for the Euro: Neutral
- The Euro appears to be consolidating after recent upside moves; there is plenty of room in futures positioning for speculators to drive prices higher.
- Net-long Euro positioning is back to its highest level since the last week of March.
- The IG Client Sentiment Index suggests that EUR/JPY and EUR/USD have bullish biases, while EUR/GBP has a neutral outlook.
Euro Rates Week in Review
The Euro has a mostly positive turn through the middle of May, even if the headline stats don’t appear so. Even though four EUR-crosses gained and three EUR-crosses fell, the bias was towards the upside: the average loss was -0.10%, while the average gain was +0.81%. If anything, it appears that the Euro is consolidating after a strong run higher against the safe havens, while volatility in global equity markets is giving traders a reason to take their foot off the pedal when it comes to the commodity currencies.
For full Euroarea economic data forecasts, view the DailyFX economic calendar.
EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (May 2020 to May 2021) (CHART 1)
EUR/USD rates made little headway last week but still may be positioned for more gains; the four day consolidation has occurred after breaking through sideways consolidation resistance that defined price action starting in mid-April. Bullish momentum remains firm, with the pair above its daily 5-, 8-, 13-, and 21-EMA envelope, which is still in bullish sequential order. Daily MACD is moving sideways while above its signal line, and daily Slow Stochastics are holding in overbought territory. The path of least resistance remains higher; the 2021 high at 1.2350 is eyed.
IG Client Sentiment Index: EUR/USD Rate Forecast (May 21, 2021) (Chart 2)
EUR/USD: Retail trader data shows 32.22% of traders are net-long with the ratio of traders short to long at 2.10 to 1. The number of traders net-long is 10.43% lower than yesterday and 11.90% lower from last week, while the number of traders net-short is 6.26% lower than yesterday and 0.15% lower 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.
EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (May 2020 to May 2021) (CHART 3)
EUR/JPY rates hit a fresh monthly and yearly high last week before dipping – not exactly the sign of bulls reaching a point of exhaustion, however. Contextually, EUR/JPY rates are advancing further after breaking out of the downtrend from the 2008 (all-time high) and 2014 highs back in April. Bullish momentum has not been materially harmed, as the pair above its daily EMA envelope, which is still in bullish sequential order. Daily MACD is still trending higher while above its signal line, and daily Slow Stochastics are holding in overbought territory. EUR/JPY appears to be readying for a test of the 61.8% Fibonacci retracement of the 2014 high/2015 low range (which has encompassed all of EUR/JPY price action since then) at 134.29.
IG Client Sentiment Index: EUR/JPY Rate Forecast (May 21, 2021) (Chart 4)
EUR/JPY: Retail trader data shows 33.14% of traders are net-long with the ratio of traders short to long at 2.02 to 1. The number of traders net-long is 9.16% lower than yesterday and 11.97% lower from last week, while the number of traders net-short is 5.54% lower than yesterday and 3.60% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY 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/JPY-bullish contrarian trading bias.
EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (May 2020 to May 2021) (CHART 5)
It’s been previously noted that “EUR/GBP rates have been trading into an ascending triangle, which suggests that more upside may be ahead over the next several weeks.” However, the pair has extended the formation of its ascending triangle pattern, prolonging the consolidation. It may be the case that a right shoulder of an inverse head and shoulders pattern is being carved out; on the other hand, a break of the uptrend from the April and May swing lows would represent a continuation effort lower (given that the move preceding the consolidation was to the downside). It remains the case that “more time needed before any decisive directional break can be determined…better opportunities may exist elsewhere.”
IG Client Sentiment Index: EUR/GBP Rate Forecast (May 21, 2021) (Chart 6)
EUR/GBP: Retail trader data shows 57.10% of traders are net-long with the ratio of traders long to short at 1.33 to 1. The number of traders net-long is 1.28% lower than yesterday and 12.78% lower from last week, while the number of traders net-short is 10.00% lower than yesterday and 8.58% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading bias.
CFTC COT Euro Futures Positioning (May 2020 to May 2021) (Chart 7)
Finally, looking at positioning, according to the CFTC’s COT for the week ended May 18, speculators increased their net-long Euro positions for the third time in four weeks to 93,907 contracts, up from 84,829 contracts held in the week prior. Net-long Euro positioning is near its highest level since the last week of March.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
