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Euro Rebound Running Out of Road?

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  • Euro recovery may be losing steam near 1.11 vs US Dollar
  • Break of trend line support needed to confirm bearish turn
  • Trader sentiment studies continue to argue for the upside

The Euro managed a spirited recovery against the US Dollar after finding support at a three-year low, as expected. Prices have managed to erase close to 60 percent of the precipitous drop from the March 8 swing high after the Fed made its QE effort open-ended, sending the Greenback broadly lower.

The move higher may now be showing signs of exhaustion. The appearance of negative RSI divergence as prices test the 1.11 figure suggests momentum is ebbing, setting the stage for either a period of sideways drift or a reversal downward.

In the latter scenario, a break of rising trend line support set from the March 23 low – a move amounting in practice to a return below 1.0980-91 zone – would paint preceding gains as corrective in the context of a broader decline. Retesting the congestion area near 1.0850 may follow.

Immediate resistance is marked by the March 27 high at 1.1147. This is immediately reinforced in the 1.1185-1.1214 inflection region. Establishing a foothold above the latter threshold may open the door for a drive upward through the 1.13 figure.

Euro vs US Dollar price chart - 4 hour

EUR/USD 4-hour chart created with TradingView

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Euro vs US Dollar price, trader sentiment

Retail positioning data shows 61.7% of traders are net-short, with the long-to-short ratio at 1.61 to 1. IG Client Sentiment(IGCS) is typically used as a contrarian indicator, sothe net-short skew in tradersexposure suggests that EUR/USD is likely to trend upward.

Furthermore, the number of traders net-short up 4.87% from the prior trading session and 48.02% higher compared with a week before. Meanwhile, the net-short tally has declined. On balance, that appears to strengthen conviction in a sentiment-based bullish bias.

See the full IGCS sentiment report here.

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— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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