October rally in EUR/USD exchange rate may stretch further

The October rally in EUR/USD could extend further, with the technical picture positive and IG Client Sentiment data sending out a bullish trading signal.

EUR/USD price, news and analysis:

  • After the long decline in EUR/USD that began in late September last year, the near-term picture for the pair is looking brighter.
  • The technical picture is more positive and IG client sentiment data is sending out a bullish trading signal.

Technicals brighter for EUR/USD price

There is no end in sight yet for the long-term downward trend in EUR/USD that began in late September last year. However, the current month has been a good one so far for the currency pair and its October rally could yet stretch higher.

As the chart below shows, the price has risen already this month from below 1.090 to around the 1.100 level. To continue its rally it would need to make a decisive break above the 20-day moving average, currently at 1.0982, and then above the psychologically important resistance at 1.100. However, if that were to happen, there would be little further resistance until the highs between 1.1020 and 1.1026 reached on September 23 and a break above there would bring the 50-day moving average at 1.1036 into view.

EUR/USD price chart, daily timeframe (July 9 – October 8, 2019)

EUR/USD price chart Source: IG charts

EUR/USD price chart Source: IG charts

Bullish sentiment signal for EUR/USD

At the same, figures showing the positioning of retail traders using IG are sending out a bullish trading signal for EUR/USD. This IG client sentiment data show 53.6% of traders are net-long, with the ratio of traders long to short at 1.16 to one. The number of traders net-long is 3.6% lower than on Monday and 30.7% lower from last week, while the number of traders net-short is 13.7% higher than on Monday and 74.3% higher from last week.

At DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests the EUR/USD price may continue to fall. Yet traders are less net-long than on Monday and compared with last week. Recent changes in sentiment suggest that October’s rally in the EUR/USD price trend may continue despite the fact traders remain net-long.

Client sentiment for currency pairs Source: IG

Client sentiment for currency pairs Source: IG

Fundamental problems

From a fundamental perspective, however, the picture looks less bright. The continuing US-China trade dispute, concerns about a possible Turkish offensive on the Kurdish-controlled north-east of Syria and the moves in Washington to impeach US President Donald Trump could all boost demand for USD, which is seen widely as a haven for investors seeking assets regarded as less risky than others such as stocks.

However, given that these concerns have been around for a while now, it could be that they are already priced in to EUR/USD, potentially supporting the case for a rally.

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