EUR/USD Attracts Bears, But Price Momentum May Reverse Higher

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Euro Price Forecast Focus:

  • The ONE Thing: Not all is as quiet as it seems on the western front, and EUR may be the catalyst.EUR is seeing slight bullish momentum developing while retail traders on both retail and institutional desks are shorting the pair aggressively. An unwinding of the largest short EUR/USD position since 2016 could give FX traders the volatility they’ve been longing for, but unable to find.
  • A EUR bullish bias is developing against the US Dollar on a potential falling bullish wedge and the Japanese Yen per the technical indicator, Ichimoku.
  • If the upside drivers come together, then bears should watch out. There are shifting rate outlooks, crowded positioning, and falling bearish momentum that if unwound, could see a sharp move higher in EUR/USD for Q2.
  • The big story of this week was the ECB meeting, and Draghi’s commentary on negative rates. If you want the overall EUR forecast, you can find it here

Technical Forecast for the Euro: EUR/USD Neutral < 1.1440, EUR/JPY Bullish

EUR/USD Sees Falling Bearish Momentum Alongside 3x MACD Divergence

EURUSD

Chart Source: ProRealTime charting, IG UK Price Feed. Created by Tyler Yell, CMT

A week ago, EUR bears were likely chilling their champagne bottles in anticipation of potential profits to be realized as of the close of trading this week. An ECB with a worsening economic outlook seemed to be a ripe environment for sharp losses.

On Wednesday, when the ECB met, the markets grabbed onto the message that the ECB will consider whether it needs to mitigate any of the side effects from negative rates and the long-term bank funding “solution: known as TLTRO-III, but that was not enough to bring out the bears accumulation of shorts.

Now, the EUR is moving to the highest levels since late March after forming a potential double-bottom low of $1.1184 per EUR on April 2nd (monthly opening range low).

Another pair worth trader’s attention is EUR/JPY. A breakout higher in EUR/JPY could be just what the risky-asset buyers ordered for a multitude of reasons.

EUR/JPY May Push Toward Channel Resistance With This Week’s Momentum

EURJPY

Chart Source: ProRealTime charting, IG UK Price Feed. Created by Tyler Yell, CMT

Positioning Data Shows a Crowded EUR Short Position Among Institutions

EUR

Data source: CFTC, Bloomberg

The chart above shows the largest short exposure of EUR bears from institutional leveraged traders (i.e., hedge funds) since 2016. The problem is that EUR is moving higher. In other words, if the price continues to move higher for EUR/USD, we could see an aggressive unwind similar to 2017 when EUR/USD went from $1.05 to $1.26. I don’t think we’ll get a perfect parallel move, but EUR bears should get optionality while it is cheap.

Looking for a fundamental perspective on the euro? Check out the Weekly EUR Fundamental Forecast.

Sentiment Shifts Gives us a Stronger EUR-Bullish Contrarian Trading Bias

Long and Short Positions

Trader Sentiment is speaking, but are you listening? The large red bars you see above indicate that retail trader positioning is decisively increasing in favor of lower EUR prices.

The problem for bears is that this is a contrarian indicator, so with traders sitting further net-short than yesterday and last week, and the combination of current sentiment and recent changes what they are, we hold a stronger EURUSD-bullish contrarian trading bias than previously.

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---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

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