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Euro may rise as retail EUR/USD upside exposure fades

The euro may extend gains against the US dollar as retail traders increase their downside exposure. What are key technical levels EUR/USD could face if the pair rises next?

EUR/USD IG client sentiment, technical analysis and talking points

  • Euro may rise as retail long bets keep unwinding
  • Longer-term EUR/USD trend still favors downside
  • The technical levels to watch for if prices rise

EUR/USD IG client sentiment outlook

The euro may be readying to push higher against the US dollar based on recent signals from IG Client Sentiment (IGCS). At the beginning of September, IGCS implied that about 35% of retail investors were net long EUR/USD. Since then, that increased to around a 45% upside bias towards the end of the month. During this time, the pair declined by about 2.3%.

IGCS is typically a contrarian indicator. On 29 September, about 40% of retail traders were net long EUR/USD. Exposure to the upside declined by roughly 15% and 18% over a daily and weekly basis respectively. From here, the combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias in EUR/USD.

Euro technical analysis

From a technical standpoint however, EUR/USD may be setting the stage for a turn lower. On the weekly chart below, the pair was unable to push above key falling resistance from 2011 earlier in September. This is also as the $1.1877 – $1.20425 inflection zone from 2010 held. That has in turn placed the focus on the 23.60% Fibonacci extension at $1.14701.

EUR/USD Weekly Chart

Zooming in on the daily chart, EUR/USD could be at risk of a turn lower after the short-term 20-day Simple Moving Average (SMA) crossed under the medium-term 50-day SMA. This has formed a bearish ‘death cross’ which can at times precede a turn lower. Keep a close eye on the falling trend line from late August, that may also reinstate the focus to the downside.

A turn lower places the focus on $1.16 and then March highs, the latter being an inflection zone between $1.1446 and $1.1496. Beyond that sits lows from June around $1.1169. In the event of further gains instead, a push above the falling trendline exposes current 2020 highs which could make for a critical range of resistance between $1.1932 and $1.2011. Climbing above the latter subsequently places the focus on the 2017 high at $1.2092.

EUR/USD daily chart

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