EUR/USD Breaks Downtrend, Can it Rally?

EUR/USD Price Outlook:

  • The EUR/USD fundamental landscape stands relatively unchanged despite recent losses
  • Technicals hint the pair may push higher in the days ahead after a recent downtrend was broken
  • Finance Prop client sentiment reveals retail traders are net-short EUR/USD, which may suggest the pair will climb higher
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US Dollar Price Outlook: EUR/USD Breaks Downtrend, Can it Rally?

The US Dollar enjoyed a bout of strength to begin the year as EUR/USD endured a pullback toward support. While the brief reversal in price was hard to deny, it can be argued there were few changes in the underlying fundamental landscape to drive such a move. To be sure, a decline in risk appetite and damaged sentiment likely played a role as investors piled into the safety of the Greenback, but with sentiment repaired USD could face renewed pressure.

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Further still, the technical EUR/USD landscape looks encouraging. While recent weakness may have spooked some bulls, it might be viewed as mere consolidation before a continuation higher by others. To that end, the series of higher-highs and higher-lows dating back to March remains intact and EUR/USD trades above a plethora of longer-term moving averages.

EUR/USD Price Chart: Weekly Time Frame (February 2018 – February 2021)

eurusd weekly price chart outlook

Much of the same can be seen on the daily chart. Trading narrowly beneath the 50-day moving average, gold’s recent breakout of the descending channel may allow it to take aim at overhead resistance. An imminent MACD crossover beneath the 0 line with price above the 200 exponential moving average lends further bullish evidence.

EUR/USD Price Chart: 4 – Hour Time Frame (January 2020 – February 2021)

eurusd daily price chart forecast

Initial areas of interest might reside at the January 2021 high near 1.2349 followed by resistance slightly higher around 1.2400. Northward still resides a series of horizontal trendlines that may look to keep price contained so trimming exposure at – or before – these levels might be prudent.

Conversely, the area slightly beneath 1.2000 might serve as an invalidation zone that if price were to breach before pushing higher, could undermine the shorter-term trade setup altogether. Another risk is continued consolidation around the 50-day simple moving average.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 0% 0% 0%
Weekly -22% 27% 2%

That said, EUR/USD appears tilted to the topside and Finance Prop client sentiment data reveals retail traders remain net-short the currency pair. Since we typically take a contrarian view to crowd sentiment, retail positioning might suggest EUR/USD will climb higher in the days ahead. Follow @PeterHanksFX on Twitter for updates on this pair.

–Written by Peter Hanks, Strategist for Finance

Contact and follow Peter on Twitter @PeterHanksFX

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Categorized as Forex

By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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