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EUR/USD Technical Analysis: Euro May Bounce Before Deeper Drop

EUR/USD TECHNICAL ANALYSIS: BEARISH

  • Euro breaks October 2019 range floor, sinks to near-3 year low
  • Long-term chart positioning hints at scope for fall toward 1.07
  • Bounce may precede deeper drop as near-term momentum ebbs

The Euro has continued to push lower against the US Dollar as expected, taking out support marked by the October 1 low at 1.0879. That puts the single currency at its lowest level since May 2017. The next layer of near-term support is clustered near the 1.08 figure.

Euro vs US Dollar price chart - daily

EUR/USD daily chart created with TradingView

Longer-term positioning suggests there is space for deeper losses beyond that. Averaging the depth of downswings within the well-defined bearish trend guiding EUR/USD since mid-2018 suggests scope for a baseline 4.6 percent decline. That would put the pair just above the 1.07 figure.

Euro vs US Dollar price chart - weekly

EUR/USD weekly chart created with TradingView

Nevertheless, near-term positioning warns against over-extrapolating sellers’ capacity for immediate follow-through. The four-hour chart reveals positive RSI divergence, suggesting that downward momentum is ebbing. That may set the stage for a digestive pause or even an outright rebound.

A break of the 1.09 figure has scope to neutralize short-term selling pressure. Securing a further foothold above 1.0939 may set the stage for a larger recovery to challenge the underside of support-turned-resistance near the 1.10 mark.

Euro vs US Dollar price chart - 4 hour

EUR/USD 4-hour chart created with TradingView

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EUR/USD TRADER SENTIMENT

Retail trader data shows 76.04% of traders are net-long with the ratio of traders long to short at 3.17 to 1. The number of traders net-long is 5.80% lower than yesterday and 23.64% higher from last week, while the number of traders net-short is 8.63% higher than yesterday and 23.31% lower from last week.

IG Client Sentiment(IGCS) is typically used as a contrarian indicator, and traders being net-long suggests EUR/USD may continue to fall.Positioning is less net-long than yesterday but more so compared to last week. On balance, that makes for a mixed sentiment-based trading bias.

See the full IGCS sentiment report here.

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EUR/USD TRADING RESOURCES

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

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