EUR/USD News and Analysis
- Dovish FOMC flatters the euro – supports impressive bullish run
- EUR/USD technical considerations and levels to watch
- Rising shorts, declining longs add fuel to IG client sentiment’s bullish outlook
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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How to Trade EUR/USD
Dovish FOMC Flatters the Euro – Supports Bullish Run
The FOMC statement and economic projections released yesterday was perceived as dovish as the Fed opened the door to a pause with its changed language in its forward guidance. Previous statements included “ongoing increases in the target range may be appropriate”, whereas yesterday’s statement replaced such wording with, “…some addition policy firming may be appropriate” – to reflect a step down in motivation to hike rates further. Markets now price in rate cuts into year end.
In contrast, the ECB presented a strong message to the market during last week’s ECB rate decision where, despite the forced sale of Credit Suisse, the banking system remains resilient and the Governing Council remains open to further hikes. The ECB is still behind the curve both in the level of interest rates and in terms of seeing stronger signs of disinflation throughout the euro zone. Multiple ECB officials have expressed concern that current, low expectations of the policy rate diverge from ECB thinking – which suggests more upside potential for the euro.
Markets foresee a terminal rate of between 3.25% and 3.5% with no anticipation of cuts this year- unlike the US.
Source: TradingView, prepared by Richard Snow
EUR/USD Technical Considerations and Levels to Watch
Today could provide the pair with a sixth consecutive day of gains as momentum continues to see the pair push through levels of resistance. Yesterday, a conclusive break above the 1.0767 zone of resistance was achieved with ease, while another test of the trendline, identified in an earlier report, ensued.
The immediate test of bullish continuation presents itself in whether prices will respect the trendline, this time as support, ahead of the weekend. Should it hold, the pair could make another attempt at the yearly high of 1.1033. Further levels of support appear at 1.0770, with a failed bullish move potentially seeing prices back below 1.0615.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
EUR/USD Sentiment Hints at Bullish Continuation
Massive divergence between rising shorts and declining longs presents a bullish bias as far as IG client sentiment is concerned.
Source: TradingView, prepared by Richard Snow
| Change in | Longs | Shorts | OI |
| Daily | -18% | 6% | -3% |
| Weekly | -44% | 92% | 9% |
EUR/USD:Retail trader data shows 31.97% of traders are net-long with the ratio of traders short to long at 2.13 to 1.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.
The number of traders net-long is 19.23% lower than yesterday and 48.04% lower from last week, while the number of traders net-short is 2.91% higher than yesterday and 92.56% higher from last week.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading outlook.
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
