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Euro May Extend Rise vs. US Dollar But Overall Trend Points Lower

Euro May Extend Rise vs. US Dollar But Overall Trend Points Lower

Ilya Spivak,
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  • H&S chart pattern hints Euro may extend recovery vs US Dollar
  • IG trader sentiment studies bolster the case for near-term gains
  • Gains likely corrective within a broader EUR/USD downtrend
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The Euro has popped upward against the US Dollar to start April having finished March at a five-month low against. Near-term positioning on the 8-hour chart seems to present a bullish Head and Shoulders (H&S) chart pattern, speaking to the formation of an interim bottom. The measured-move objective implied by the setup envisions a push through initial resistance at 1.1834 to test the subsequent barrier at 1.1881.

Euro vs US Dollar price chart - 8 hour

EUR/USD 8-hour chart created with TradingView

Such a move looks likely to be corrective. Indeed, looking at the daily chart, the move called for by the H&S structure implies a rise closely analogous to the upward retracement in the first half of March. Another such advance would fall well within the “rhythm” of the downtrend emanating from the Shooting Star candlestick marking the February 25 swing top.

Euro vs US Dollar price chart - daily

EUR/USD daily chart created with TradingView

The weekly chart reinforces the broadly bearish tilt in overall positioning, suggesting EUR/USD has clearly broken the uptrend defining it for most of 2020. This is even as it flags the 1.1630-1.1901 area as an established congestion region, where a period of sideways chop is liable to take place before the dominant trajectory – which now points downward – is reasserted anew.

Euro vs US Dollar price chart - weekly

EUR/USD weekly chart created with TradingView


IG Client Sentiment (IGCS) statistics suggest that 50.81% of market participants are net-long EUR/USD, with the short-to-long ratio at 1.03 to 1. This is typically used as a contrarian indicator, implying thatthe tilt in exposure signals a bearish trend bias. However, traders are less net-long than yesterday and compared with last week, warning that a reversal higher may be brewing ahead.

See the full IGCS sentiment report here.

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--- 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.