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Euro may rise as short bets follow EUR/USD to 2008 trendline

The euro may rise versus the US dollar as retail investors persistently sell the trend. This has pushed EUR/USD to test critical falling resistance from 2008.

Euro and dollar Source: Bloomberg

Euro, EUR/USD IG client sentiment - talking points

EUR/USD IG client sentiment outlook

The euro could be readying to extend recent gains against the US dollar, based on signals from IG client sentiment (IGCS). On 6 August, the IGCS gauge implied that roughly 29% of retail investors were net-long EUR/USD. Exposure to the upside decreased by 25.92% and 16.51% over a daily and weekly basis respectively. Meanwhile, net-short bets have increased by 5.87% and 2.92% over the same periods.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short hint the world’s most-liquid forex pair could continue climbing. Recent changes in positioning offer a more potent bullish contrarian trading bias for EUR/USD. From a psychological standpoint, this could speak to the persistence of investors attempting to pick the next topping point in the euro.

EUR/USD client positioning

IGSC chart Source: IG charts
IGSC chart Source: IG charts

Euro technical analysis

With August now underway, EUR/USD is attempting to push above long-term falling resistance from 2008 – see monthly chart below. The July candle closed within this zone of resistance, maintaining the dominant downside bias in the euro. With IGCS signals pointing to the bullish side, this has placed the focus on the $1.1877 – $1.2043 inflection zone. Beyond that sit peaks from 2018, in the $1.2413 – $1.2556 region.

EUR/USD monthly chart

EUR/USD monthly chart Source: TradingView
EUR/USD monthly chart Source: TradingView


The daily chart shows that falling resistance from 2008 is already in the process of being taken out, though clear upside confirmation seems to be lacking. Negative RSI divergence has also emerged as prices push into the 2010-2012 inflection zone. This is a sign of fading upside momentum which can at times precede a turn lower. Such an outcome could place the focus on the 20-day simple moving average (SMA) below.

In the short to medium term, two layers of support could maintain the upside bias should prices decline instead. These form rising support from May and March – red lines on the daily chart below. Taking out the former could shift the focus to the downside. The latter could then reinstate an upward trajectory. Otherwise, clearing $1.2043 exposes the 78.6% Fibonacci retracement at $1.2145 on the way towards highs from 2018.

EUR/USD daily chart

EUR/USD daily chart Source: TradingView
EUR/USD daily chart Source: TradingView

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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