- EUR/USD found buyers late last week, but the bounce may result in a lower-high
- A lower-high could be quite important after double-topping at the 2008 trend-line
- Event risk comes by way of ECB meeting on Thursday, NFPs on Friday
EUR/USD is coming perilously close to carving out a bearish price sequence in the days ahead. We’ve been discussing quite a bit lately the impact of the 2008 trend-line, and as long as the euro stays below it will struggle. The struggle could turn into an outright sell-off if a bounce soon fails.
The double-top at the 2008 trend-line put into motion the notion we may be seeing a top form at an important line of resistance. And now with EUR/USD possibly putting in a lower-low from earlier last month, in the days ahead the euro may be ready to turn down from the long-term trend-line for an extended period of time.
The trend since last year is still pointed up, but a strong turn down will have important support by way of the 2017 high and trend-line from April come under fire. A solid close below 12100 is seen as a possible catalyst for a sizable unwind by large speculators in the futures market. Positioning has been hovering in record territory for a while and suggests on a turn of trend there will be plenty of fuel to drive the single-currency lower.
Looking at retail positioning, traders are net short EUR/USD (IGCS index is at -1.8), which on a contrarian basis is a bullish signal with sellers out pacing buyers by nearly 2 to 1, but should sellers show up in earnest that could quickly change in favor of lower prices as traders flips long. It’s worth keeping an eye on. Check out the IG Client Sentiment page for further details.
In terms of event risk next week, a rise in volatility could result from the ECB on Thursday and/or the U.S. jobs report on Friday. For estimates and release times, check out the economic calendar.
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EUR/USD Daily Chart
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---Written by Paul Robinson, Market Analyst
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