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EUR/USD rally possible as sentiment data sends bullish signal

EUR/USD has been weakening as risk-averse investors move into the perceived safety of the US dollar. However, IG client sentiment data suggests a bounce may be due.

Bullish signal for EUR/USD

The EUR/USD currency pair has been falling steeply as traders opt for the relative safety of the US dollar amid concern about the eurozone economy and a possible second wave of Covid-19 infections in Europe. That can be seen on the following one-hour chart tracking the pair over the past week.

However IG client sentiment data (IGCS), which track the positioning of retail traders using the company, suggest a reversal. The numbers show that more traders are now short – expecting the pair to fall – than are long. With just 40.30% of traders net long, the ratio of traders short to long is 1.48 to 1. 

Moreover, the number of traders net long is 3.84% lower than on Wednesday and 0.68% lower than last week, while the number of traders net short is 1.49% higher than on Wednesday and 14.32% higher than last week.

At DailyFX, IG’s news and research website, we typically take a contrarian view to crowd sentiment, and the fact traders are net short suggests EUR/USD prices may rise. Also, traders are further net short than on Wednesday and last week, and the combination of current sentiment and recent changes gives us a EUR/USD-bullish contrarian trading bias.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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