EUR/USD technical analysis: euro weakness eyes support test

The euro has weakened broadly and forcefully over recent weeks as Covid-19 woes pressure the block currency, but can EUR/USD cling to nearby technical support?

EUR/USD price action has bled steadily lower since the start of the year as the euro weakness exacerbates US dollar strength. The major currency pair now trades 600-pips off its January swing high with EUR/USD selling pressure largely tracking plunging EU-US interest rate differentials. This likely follows relatively subdued economic growth projections for the Eurozone in light of ongoing covid woes and vaccine rollout struggles. Yet, at the same time, retail FX traders have increased their net-long EUR/USD exposure.

IG client sentiment (IGCS) data shows EUR/USD net-long positioning at its highest level in months, for instance. The data reveals that 55% of traders are net-long resulting in a long-to-short ratio of 1.24 to 1. Not to mention, on a week-over-week basis, the number of traders net-long increased by 1.37% while the number of traders net-short decreased by 6.41%. That said, we typically take a contrarian view to crowd sentiment, and the fact that retail FX traders are more net-long suggests EUR/USD price action might continue falling. On the other hand, if we see IGCS data for EUR/USD turn less net-long, this could indicate the euro rebound potential.

EUR/USD price chart: weekly time frame (July 2019 to April 2021)

EUR/USD price action currently trades around the $1.175 level and four-month lows. The euro could be searching for technical support here provided by a confluence of its bottom Bollinger Band and long-term ascending trendline. This area is roughly underpinned by its 50-week simple moving average (SMA) and 38.2% Fibonacci retracement as well. A breakdown of this zone might motivate EUR/USD bears to set their sights on the swing lows recorded last September and November. That said, the euro weakness is starting to look a bit overdone seeing that the relative strength index is just a stone’s throw away from ‘oversold’ territory. Rebound attempts staged by EUR/USD bulls could see the $1.20 handle come back into focus as potential resistance.

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