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EUR/USD jumps as euro bulls cheer EU summit deal. But will it last?

EUR/USD price action has ripped higher in large thanks to the monumental stimulus package revealed by EU officials, but can the euro sustain its advance?

EUR/USD eyes multi-year trend resistance as bulls make push

  • EUR/USD extends its climb as euro bulls push the bloc currency to a 23-month high
  • Euro price action has benefited from a €750 billion stimulus deal just reached
  • Euro could keep advancing judging by retail forex trader positioning

The euro has been ripping higher over the last two months. Euro strength largely stems from positive tailwinds provided by a €750 billion recovery fund that France and Germany proposed in May, which was just approved by eurozone officials at the European Union (EU) summit earlier this week.

Desperately needed fiscal stimulus looks to boost the coronavirus-battered economy and accelerate gross domestic product (GDP) growth prospects. In turn, this has helped facilitate a sharp 7% advance by EUR/USD off the $1.08 price level.

EUR/USD price action now hovers a touch below the $1.16 level following recent euro gains, but is there room for the most liquid and heavily traded currency pair to continue its climb? Looking at a EUR/USD chart with weekly candlesticks a broad bearish trend can be identified by the series of lower highs printed over the last several years.

Spot EUR/USD is still some way from running into this technical obstacle that may serve as a potential topside objective for euro bulls, however. It is also worth mentioning that this resistance zone happens to align with the 23.6% Fibonacci retracement level of EUR/USD’s trading range since 2008.

That said, shifting focus to IG Client Sentiment hints at the possibility for more euro upside against its dollar peer. According to the latest IG Client Sentiment Report, 29.3% of EUR/USD retail traders are net long on the major currency pair.

This suggests a bullish trading bias since we typically take a contrarian view to crowd sentiment, which is widely driven by retail traders’ tendency to position against the prevailing trend.

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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