Euro price outlook: EUR/USD battle lines drawn

EUR/USD IG client sentiment talking points

• Euro recovery faces first test of resistance at former support – trade levels well-defined
• Looking for support ahead of $1.1107 for long bias to remain viable
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EUR/USD snapped a three-week losing streak with the single currency recovering back towards a key inflection slope – a pullback from this level will be the tell of whether this recovery has legs or was simply a relief rally. These are the updated targets and invalidation levels that matter on the EUR/USD weekly price chart.

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Euro price chart - EUR/USD weekly

In late July, the euro broke below the lower parallel of a long-standing ascending pitchfork formation we’ve been tracking for years now. The break responded sharply at yearly channel support last week with the rally failing this week at this same slope (former support now resistance) – the battle lines are drawn for the euro.

A topside breach/close above the 61.8% retracement of the June decline at $1.1265 is needed to suggest that a more significant low is in place with such a scenario targeting the high-week close/channel resistance at $1.1370. Initial weekly support rests with the May low/yearly low-week close at $1.1106, a break below this threshold could see steep losses for the single currency with subsequent support see a at the trendline confluence around $1.0940.

The euro recovery is now testing initial resistance at former support – it’s make or break here. From a trading standpoint, we’ll favour fading weakness for now above $1.1106, with a breach above $1.1265 needed to keep the long bias going.

Euro trader sentiment – EUR/USD

• A summary of IG client sentiment shows traders are net-long EUR/USD - the ratio stands at +1.08 (52% of traders are long) – neutral reading
• Traders have remained net-long since 1 July, with the price moving 1.4% lower since then
• The percentage of traders net-long is now its lowest since 28 June
• Long positions are 6% lower than yesterday and 32% lower from last week
• Short positions are 7.5% higher than yesterday and 43% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long