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The euro currency is starting to firm above the 1.2100 level against the US dollar as last Friday’s major reversal in the US dollar index continues to gain momentum and shows few signs of relenting into the current weekly price close.
Perhaps the realization that the US jobs and inflation situation is still well below par caused traders and investors to pile back into the US dollar short trade. Additionally, positive news from Italy is also underpinning the euro currency right now.
The notion that former ECB President Mario Draghi will be at the helm of Italian politics and could be the answer to the nations fiscal and economic woes has helped to prop the euro currency back up again, despite ECB members jawboning the currency lower.
But without question it is the US dollar story that is doing the real damage at the moment. All the time financial markets are pricing in low interest rates, more QE, and more stimulus from the Biden administration then greenback selling will prevail.
In terms of market positioning the recent COT report from the CME showed that the EURUSD long position is still the largest fx trade out there on the futures market right now. This is very telling if institutions and pro traders expect more upside.
Looking at retail positioning, things look particularly bleak for the EURUSD pair right now. The ActivTrader Market Sentiment tool shows that some 72 percent of traders are bearish towards the euro right now.
If we consider that the futures market is betting big on more EURUSD upside, and retail traders are leaning against this ongoing recovery then there is a compelling case for shorter and more medium-term upside in the EURUSD pair.
It is not hard to imagine that the EURUSD pair could continue to rise towards the 1.2200 level, and possibly even the 1.2300 level over the coming days and weeks.
EURUSD Short-Term Technical Analysis
According to the four-hour time, EURUSD bulls are back in full control after winning a major technical battle and moving the pair above the neckline of a large head and shoulders pattern around the 1.2060 level earlier this week.
This was a major technical statement by bulls, and we have since seen one-way travel to the upside. The 1.2130 level is a major pivot point for the EURUSD pair right now, and an important technical area to watch.
Source By ActivTrader.
If price reaches the 1.2185 level then a huge, inverted head and shoulders pattern will form on the lower time frames. The overall size of the pattern is implying a coming rally towards the 1.2400 area.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, bulls were able to maintain the EURUSD pair inside a large rising price channel. This has encouraged bulls to take the euro higher.
As long as the 1.2060 level remains defended we should expect a coming push towards the top of the channel. Traders should note that a large head and shoulders pattern will be invalidated if the EURUSD pair reaches 1.2340.
Source By ActivTrader.
The overall invalidation target would take the EURUSD pair towards the 1.2800 level over the medium-term. The top of the channel is around 1.2700, although it is rising every day, so 1.2800 appears appropriate.
