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EUR/USD Technical Analysis: Euro Turn Brewing at 3-Month High?

EUR/USD Technical Analysis: Euro Turn Brewing at 3-Month High?

Ilya Spivak, Head Strategist, APAC

EUR/USD TECHNICAL ANALYSIS: BEARISH

  • Euro at 3-month highs after sharp seven-day climb vs US Dollar
  • Near-term chart positioning warns that a top might be forming
  • Sentiment studies may be nearing a bullish positioning extreme

A spirited Euro recovery brought the currency through range resistance and extended to the highest level since mid-March, scoring an impressive seven-day winning streak along the way. Prices are now perched ahead of inflection point resistance at 1.1239. Breaking above this barrier on a daily closing basis seems to set the stage for a run at the 2020 swing top at 1.1496.

Euro vs US Dollar price chart - daily

EUR/USD daily chart created with TradingView

Alternatively, a move below resistance-turned-support at 1.1147 probably opens the door for a pullback to retest the recently broken range top near the 1.10 figure. In fact, zooming in to the four-hour chart suggests this may well be the way forward. The appearance of a bearish Evening Star candlestick pattern coupled with negative RSI divergence hints that a top may be taking shape.

Confirmation of bearish reversal requires a breach of rising trend line support guiding the past week’s climb and defining the near-term upward bias. Managing to do so is likely to put prices in close-enough proximity to support at 1.1147 to demand a further breach of this barrier to make for a short trade setup with acceptable risk/reward parameters.

Euro vs US Dollar price chart - 4 hour

EUR/USD 4-hour chart created with TradingView

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EUR/USD TRADER SENTIMENT

Trader sentiment data warns would-be sellers against over-extrapolating the case for weakness just yet however. IG Client Sentiment (IGCS) statistics suggest that 65.31% of market participants are net-short EUR/USD, with the short-to-long ratio at 1.88 to 1. This is typically used as a contrarian indicator, implying thatthe tilt in tradersexposure points to an bullish trend bias.

In fact, traders are more net-short now than they were previously, with the skew 0.97 percent deeper compared with yesterday and 12.58 percent greater than a week ago. That may speak to strengthening upside pressure. However, positioning has been stretched to levels where bullish sentiment extremes have repeatedly occurred over the past year, so capitulation may well be on the horizon.

Euro vs US Dollar price chart, trader sentiment

See the full IGCS sentiment report here.

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EUR/USD TRADING RESOURCES

--- Written by Ilya Spivak, Head APAC Strategist for DailyFX

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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