CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

EUR/USD breakout post-Fed at risk as euro long bets fade

Confirming the EUR/USD downside breakout after the Fed rate cut could be difficult given potential reversal technical signals and fading euro net long bets.

Euro Source: Bloomberg

​EUR/USD IG client sentiment talking points

  • EUR/USD tumbled after the Fed surprised with less-dovish rate cut
  • IG client sentiment is offering a bullish euro outlook
  • Support breakout undermined by hammer candlestick

EUR/USD IG client sentiment outlook: bullish

On 31 July financial markets were disappointed as the Federal Reserve (Fed) cut interest rates for the first time since 2008. Fed chair Jerome Powell arguably delivered a tone that was less dovish than anticipated when he mentioned that the central bank’s action was not necessarily the beginning of a lengthy cutting cycle. Since then, the US dollar lost some steam against the euro as US-China trade tensions refueled local easing bets.

Since 1 July, we saw traders increase EUR/USD net long exposure as the pair traded over 3% lower. However, according to the latest IG client sentiment update from 1 August, EUR/USD net long exposure shrunk 4.4% and 6.7% compared to the previous day and week respectively. In total, those readings left 73% of euro traders biased towards the long side, down from about 74% on 31 July.

As a contrarian indicator, this is offering an early warning sign that the current euro price trend may soon reverse higher. In other words, in the coming days and weeks, we could see EUR/USD net long exposure unwind as traders’ bets on picking where the pair could bottom fade. On the flip side, should this dynamic reverse course, this may rekindle downside pressure in the euro.

Find out more about forex trading from IG

EUR/USD Client Positioning IG Group
EUR/USD Client Positioning IG Group

EUR/USD technical analysis: downside breakout eyes confirmation

The 0.75% decline in EUR/USD on 31 July resulted in the currency pair taking out the key psychological barrier between $1.1110 and $1.1132. This area consisted of the lows achieved in May and June of 2017 which on multiple occasions tamed the euro downtrend earlier this year. As a result of the downside push, this has exposed prices that were last achieved in April of the same year.

A close under the 78.6% Fibonacci retracement at $1.1048 may be bearish technical confirmation that paves the way for a test of $1.0950. However, the latest attempt to do so left a long wick as EUR/USD formed a hammer candlestick below. This is a sign of indecision and with upside confirmation, may precede a reversal. Keep a close eye on former support which may hold as resistance at the outer boundary of $1.1132.

Learn the basics and process of shorting forex and EUR/USD here

EUR/USD Daily Chart TradingView
EUR/USD Daily Chart TradingView

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Start trading forex today

Find opportunity on the world’s most-traded – and most-volatile – financial market

  • Trade spreads from just 0.6 points on EUR/USD
  • Analyse with clear, fast charts
  • Speculate wherever you are with our intuitive mobile apps

See an FX opportunity?

Try a risk-free trade in your demo account, and see whether you’re onto something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See an FX opportunity?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Get spreads from just 0.6 points on popular pairs
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See an FX opportunity?

Don’t miss your chance. Log in to take your position.

What is the number one mistake traders make?

We reveal the top potential pitfall and how to avoid it. Discover how to increase your chances of trading success, with data gleaned from over 100,000 IG accounts.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.