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EUR/USD swings as Fed looms, retail FX traders grow bearish

IG client sentiment reveals retail FX traders turn increasingly bearish toward EUR/USD headed into the September Fed meeting.

EUR/USD positioning hints at possible bull trend continuation

  • EUR/USD has oscillated month-to-date but could be primed to continue its advance
  • IG client sentiment reveals retail FX traders grow bearish on the euro-dollar
  • Federal Reserve (Fed) rate decision and economic projections might strongarm the dollar price action

EUR/USD has whipsawed so far this September. The euro pulled back to start the month as the dollar attempted to bottom near two-year lows measured by the DXY Index, but the move has reversed more recently. The EUR/USD price action currently trades near the $1.185 mark after falling 210 pips then rising 110 pips over the last few trading sessions, but the major currency pair could be readying for a resumption of its broader bullish trend.

EUR/USD price chart: daily time frame (12 June to 15 September 2020)

The latest rejection at technical resistance around the $1.19 handle casts doubt over potential for upward continuation. Also, negative divergence indicated by the relative strength index on a daily EUR/USD chart points suggests spot prices could struggle to sustain their advance.

Nevertheless, a healthy bounce off technical support provided by the 50-day moving average (MA) likely serves as an encouraging development for euro-dollar bulls. The EUR/USD price action has also notched a series of higher lows, which could suggest the bullish trend remains intact despite recent consolidation. On that note, surmounting the 10 September intraday swing high could open up the door for a retest of the $1.2 level.

IG client sentiment - EUR/USD price chart: daily time frame (01 January to 15 September 2020)

The latest IG client sentiment report also hints at the potential for EUR/USD price action to rise. This is indicated by retail FX trader positioning, which has turned more net-short over the last week, even despite European Central Bank (ECB) officials communicating they are comfortable with the relatively stronger euro.

We typically look at IG client sentiment through the lens of a contrarian, and seeing that retail FX traders have turned more bearish toward EUR/USD recently, spot prices could continue to climb. Nevertheless, event risk surrounding the upcoming Fed meeting has serious potential to strongarm the dollar and, in turn, spot EUR/USD. The anti-risk dollar could catch a bid if the Fed fuels a deterioration in market sentiment with their scheduled interest rate decision and release of updated quarterly economic projections.

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