Euro Forecast: EUR/USD and EUR/JPY May Rise as Long Bets Fade, Will This Last?
Euro, EUR/USD, EUR/JPY, Technical Analysis, Retail Trader Positioning - Talking Points
- Retail trader bets hint EUR/USD and EUR/JPY may rise in the near-term
- Broader technical signals favor downside in EUR/USD, upside EUR/JPY
- Check out my webinar recording on IGCS to learn how to use it in trading
Recent gains in the Euro have been cautiously pushing retail investors to unwind long positioning in the currency. This includes EUR/USD and EUR/JPY, opening the door to further price gains. This can be demonstrated by taking a look at IG Client Sentiment (IGCS), a gauge of retail trader positioning.
IGCS is typically a contrarian indicator, meaning that if upside exposure is decreasing in an asset, prices could be readying to rally and vice versa. For a further analysis of this tool, where I also demonstrate how you can use it in a trading strategy, check out a recording of a recent webinar I hosted here.
EUR/USD Sentiment Outlook - Bullish
The IGCS gauge implies that about 50% of retail traders are net long EUR/USD. Upside exposure has decreased by 0.42% and 10.24% compared to yesterday and last week respectively. Traders are also further netshort over the same time periods.The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.
EUR/USD could have room for near-term strength following a break above a bullish Falling Wedge chart pattern. This also followed the presence of positive RSI divergence, a sign of fading downside momentum. However, a bearish crossover between the 50-day and 100-day Simple Moving Averages (SMAs) hints that the broader picture could still be tilted to the downside. Keep a close eye on the 1.1932 – 1.2011 inflection zone.
EUR/USD Daily Chart
EUR/JPY Sentiment Outlook - Bullish
The IGCS gauge implies that about 40% of retail investors are net long EUR/JPY. Upside exposure has decreased by 10.04% and 6.92% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment. The fact traders are mostly net short suggests prices may continue to rise. The combination of current sentiment and recent changes further bolsters this argument.
From a technical standpoint, EUR/JPY could be at risk of a near-term pullback. Prices are aiming to resume the dominant uptrend, maintained by rising support from last year’s bottom. But, negative RSI divergence is warning that upside momentum is fading. As such, if resistance holds at 130.66, the pair may turn lower to retest the key trendline. Otherwise, extending gains exposes peaks from July 2018.
EUR/JPY Daily Chart
*IG Client Sentiment Charts and Positioning Data Used from April 7th Report
--- Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.