Euro Likely to Turn Lower at $1.32
EURUSD – Incredibly choppy Euro/US Dollar price action has made for similarly directionless retail forex trading sentiment, giving us little indication of what the EURUSD may do next. Trading crowds remain net-long the US Dollar (ticker: USDOLLAR) against the Euro and other major counterparts (short EURUSD). All else remaining equal, we would take this as a contrarian signal that the US currency may hit further lows (EURUSD hit further highs).
Yet recent sideways price action warns against taking a strong EURUSD bullish bias as it trades near the top of its multi-week range. Ultimately we believe that flare-ups in Euro Zone fiscal tensions could force the EURUSD significantly lower. Yet traders seem perfectly willing to keep the pair within a tight range despite macroeconomic risks, and as the saying goes—markets can remain irrational far longer than you can remain solvent.
We’ll keep an eye on the Dow Jones FXCM Dollar Index, and a hold above range lows at 9900 favors a test of 8-month highs near 10,134. Such a move would likely coincide with an important break lower in the EURUSD.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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