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Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

Daniel Dubrovsky, Strategist

Euro, EUR/USD, EUR/GBP, Technical Analysis, Retail Trader Positioning – Sentiment Weekly

  • Retail traders remain bullish on the Euro across most pairs
  • From a contrarian standpoint, this may not bode well for it
  • What is the road ahead for EUR/USD and EUR/GBP?

Retail traders continue to maintain upside exposure in the Euro in certain pairs despite ongoing weakness in the single currency. This can be measured by taking a look at IG Client Sentiment (IGCS), which tends to behave as a contrarian indicator. With that in mind, if this trend in positioning continues, will the Euro be at risk going forward?

EUR/USD Sentiment Outlook - Bearish

The IGCS gauge shows that about 68% of retail traders are net-long EUR/USD. Since the majority of the crowd remains bullish, this is a sign that prices may continue falling. Moreover, upside exposure has increased by 4.59% and 15.39% compared to yesterday and last week respectively. The combination of overall positioning and recent shifts in sentiment are offering a stronger bearish contrarian trading bias.

Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

Daily Chart

EUR/USD fell over the past few trading sessions, bringing it back closer towards the critical 1.0340 – 1.0388 support zone. The latter is made up of lows from 2017, as well as the trough seen in May. A breakout under this floor would open the door to extending losses, exposing the midpoint and 61.8% Fibonacci extensions at 1.0214 and 1.0079 respectively. Guiding the pair lower has been a falling trendline from February. Traders ought to watch this line in the event of a turn higher. It could reinstate the downside focus.

Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

Chart Created in Trading View

EUR/GBP Sentiment Outlook - Bearish

The IGCS gauge reveals that roughly 58% of retail traders are net-long EUR/GBP. Since the majority is long, this suggests that prices may continue falling. Downside exposure has decreased by 10.13% and 4.05% compared to yesterday and last week respectively. With that in mind, the combination of these dynamics hints that the pair may remain biased to the downside.

Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

EUR/GBP Daily Chart

EUR/GBP has been struggling to maintain a push above the 0.8589 – 0.8619 resistance zone on the daily chart below. Still, the pair remains in an uptrend since prices found a bottom earlier this year. Guiding EUR/GBP higher has been a rising trendline from April. A breakout under this support could open the door to extending losses. In such an outcome, keep a close eye on the 50- and 100-day Simple Moving Averages. These could reinstate an upside focus. Further gains would open the door to revisiting the 0.8701 – 0.8731 ceiling.

Euro Outlook: EUR/USD, EUR/GBP Remain Vulnerable as Retail Traders Hold Long

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from June 29th 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.

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