The euro currency finished the week slightly in negative territory against the US dollar, following a roller-coaster week on the foreign exchange market where the pair traded between the 1.2020 to 1.2170 levels.
Traders and investors are braced for the reflation trade, which is keeping the upside in the EURUSD pair under wraps at the moment. The recent CoT report from the futures market showed that the EURUSD long trade is still the biggest position out there in terms of size for futures market participants.
Should we see future traders unwinding EURUSD longs then a huge move in the spot market could take place. A major change in traders positioning and thinking towards the euro or indeed the US dollar is needed to break the recent price ranges.
Last Friday’s US PMI Manufacturing and Services report showed firms raising prices at a record pace, which helped flag that the reflation trade is starting to come to fruition in the United States. Once the market collective accepts this perception then it could be time for the US dollar index to break higher.
IHS Markit commented on Friday’s US PMI Manufacturing and Services report and said, “Business sentiment remains buoyant, boosted by hopes of further stimulus and the vaccine roll out, but it’s disappointing to see this not yet translate into stronger jobs growth.”
The British-American information provider added “Many service sectors firms in particular remain reluctant to hire, cautious about adding to overheads. A concern is that firms costs have surged higher, driving selling prices for goods and services up at a survey record pace and hinting at a further increase in inflation.”
This report therefore suggest that inflation is rising, and the economy remains weak. The difficulty is interpreting whether this is bullish for the greenback or not, as more stimulus is required in a low growth environment. This could explain the mixed reaction in the EURUSD pair on Friday.
Looking at retail sentiment there is no major shift or one-way skew towards the EURUSD pair right now. Which could imply more range bound conditions. The ActivTrader Market Sentiment tool shows that some 56 percent of traders are bearish towards the pair right now.
EURUSD Short-Term Technical Analysis
The main feature on the short-term is range bound trading conditions. The EURUSD pair probably needs to break from the 1.2000 to 1.2200 price range before we see the next big short-term trend forming.
Traders looking for exposure to a breakout may need to wait for price stabilization of either side of the 1.2000 to 1.2200 price range. Price settling either side of this range would be a big clue that the EURUSD is picking a new direction.
It is also important to note that an extremely large head and shoulders pattern, with a three-hundred-point projection, is in play because the EURUSD pair trades beneath the 1.2060.
Source By ActivTrader.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, the EURUSD pair moved under a large price channel last week, but quickly recovered back inside the channel. Therefore, the EURUSD pair is still trapped inside the large rising price channel.
The location of the pattern is found between the 1.2050 to 1.2800 levels. Sustained weakness under the 1.2050 level could trigger a major sell-off. Failure to do so and we should expect a big bounce in the EURUSD.
Source By ActivTrader.