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The outlook for EUR/USD is unclear, data suggest

The recent EUR/USD sell-off has reversed this week as the greenback weakens on further stimulus proposals.

EUR/USD sentiment, price and analysis

  • Clients remain short of EUR/USD but the outlook is mixed
  • Continued US dollar weakness may allow the pair to fade higher

The latest European Central Bank (ECB) meeting suggests that the central bank will keep monetary policy settings as accommodative as is needed to help the single-block reverse the economic damage caused by the coronavirus. While vaccination programs are up and running, most of Europe remains in lockdown due to the increasing infection and fatality numbers. This is likely to remain the case for the weeks ahead, keeping downward pressure on the euro. The US dollar is also weak, again due to a highly accommodative central bank, and the greenback is seen underperforming the Euro in the short- to medium-term, leaving EUR/USD room to move marginally higher.

IG Retail trader data shows 46.43% of traders are net-long with the ratio of traders short to long at $1.15 to 1. The number of traders net-long is 6.38% higher than yesterday and 1.44% lower from last week, while the number of traders net-short is 4.07% lower than yesterday and 3.41% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

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A look at the daily EUR/USD chart shows the pair trading in a $1.205 - $1.235 range over the last six weeks. Looking at the commodity channel index (CCI) indicator, EUR/USD has oscillated between overbought and oversold during this timeframe and is currently moving towards a neutral position.

Within this range sit the 20- and 50-day simple moving averages (SMAs) and these will likely determine the short-term path for the pair. Both have been supportive until early January and for EUR/USD to test the upper end of the trading range, these two moving averages – currently at $1.2142 and $1.2198 – need to be broken convincingly. It is likely that EUR/USD will remain rangebound in the short term.

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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