EUR/USD TECHNICAL ANALYSIS:
- Euro on the cusp of breaking key multi-year range support vs. US Dollar
- Confirmation on a monthly closing basis may precede a breach of parity
- Trader sentiment studies flash bearish cues, bolstering breakdown risk
The Euro is at a pivotal juncture against the US Dollar. Looking at the monthly chart, prices are sitting on support at the bottom of a range that has capped downside progress since March 2015. Breaking below this barrier may set the stage for the next big leg in the structural decline from the peak above 1.60 in 2008.
A monthly close below 1.0340 would look like confirmation of a breach, with the next move after that seemingly set to bring EUR/USD below the closely watched parity level. Long-term Fibonacci extensions approximate next steps, with major inflection points seen at 0.9707 (50%) and 0.9034 (61.8%).
On the topside, immediate resistance levels come in at 1.0885 and 1.1239. A rebound that brings prices through these barriers is likely to put the multi-year congestion zone capped at 1.1727 back into focus. Still further above that is trend-defining support-turned-resistance running up into 1.2538.
EUR/USD monthly chart created with TradingView
For its part, the IGCS retail sentiment indicator argues for bearish bias. It shows that 67.24 percent of traders are net-long EUR/USD, with a more than 2 to 1 long-to-short ratio. Furthermore, the number of traders with net-long exposure is on the move higher, up 5 percent compared with last week.
This is typically considered as a contrarian indicator. A growing skew toward the long side – all else equal – suggests that EUR/USD will continue to fall. If that remains the case for just another week, the bearish monthly close needed for range breakout confirmation is likely to be secured.
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--- Written by Ilya Spivak, Head Strategist, APAC at DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
