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.
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.
EUR/USD 4-hour chart created with TradingView
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 traders’exposure 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.
See the full IGCS sentiment report here.
EUR/USD TRADING RESOURCES
- Just getting started? See our beginners’ guide for traders
- What is your trading personality? Take our quiz to find out
- Join a free webinar and have your trading questions answered
--- Written by Ilya Spivak, Head APAC Strategist for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
