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EUR/USD Technical Analysis: Euro Retreats, Rally Clings to Life

EUR/USD Technical Analysis: Euro Retreats, Rally Clings to Life

Ilya Spivak, Head Strategist, APAC

EUR/USD TECHNICAL ANALYSIS: NEUTRAL

  • Euro on the back foot after sharp rejection at resistance near 1.15
  • Boundaries of last week’s upside breakout remain intact for now
  • Short-term charts warn of greater scope for EUR/USD downside

The Euro retreated against the US Dollar having found resistance below the 1.15 figure, as expected. The formation of a bearish Dark Cloud Cover candlestick pattern was followed by a sharp downswing to retest resistance-turned-support at a falling trend line established from September 2018.

The pullback follows a surge to 13-months highs amid early market turmoil driven by worries about the coronavirus outbreak. Although the fundamental case for Euro weakness seems compelling, EUR/USD has tellingly fallen short of breaching former resistance, landing directly on top of it instead.

Sellers seem to have their work cut out for them. Neutralizing last week’s upside breakout probably calls for grinding back under the lower boundary of the former falling trend top and clearing the 1.0992-1.1009 area and securing a foothold there on a daily closing basis.

Euro vs US Dollar price chart - daily

EUR/USD daily chart created with TradingView

Nearer-term positioning on the four-hour chart seems to bolster the bearish narrative however. Prices have taken out immediate rising trend support and slipped below resistance-turned-support in the 1.1185-1.1214 area. From here, a push under 1.1096 is likely to expose the 1.0980-91 zone.

Putting EUR/USD back on the offensive in earnest probably calls for a breach of the downward-sloping barrier capping forays to the upside since the pair began its retreat four days ago. If such a move were to find follow-through, it could set the stage for another run at the 1.15 mark.

Euro vs US Dollar price chart - 4 hour

EUR/USD 4-hour chart created with TradingView

EUR/USD TRADER SENTIMENT

Euro vs US Dollar exchange rate, trade sentiment

Retail positioning data shows 66.03% of traders are net-short, with the short-to-long ratio at 1.94 to 1. IG Client Sentiment(IGCS) is typically used as a contrarian indicator, sothe net-shortskew in tradersexposure suggests that EUR/USD may continue to rise.

However, the number of traders net-short is 22.53% lower than in the prior session and 35.69% lowercompared with a week before.This warns that – despite the overall net-short stance – the currency pair may be working its way toward a reversal downward.

See the full IGCS sentiment report here.

EUR/USD TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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