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The euro currency breached some key support zones and technical metrics against the US dollar yesterday, as the buck firmed against almost all major currencies. In fact, it seems like the demand for the greenback is increasing into the monthly and quarterly price close.
Yesterday’s move below the 1.1835 level caused the EURUSD to hit a fresh 2021 low, marking the weakest trading level for the pair since November of last year. Additionally, a major range breakout took place, which dampened the technicals for the EURUSD significantly.
More importantly, the EURUSD pair broken under its 200-day moving average for the first-time since May 2020. Should we start to see the EURUSD pair holding under the 200-day moving average on a multi-day basis then a considerable price slump may be on the cards.
Traders shrugged-off better-than-expected German PMI manufacturing data yesterday, and instead chose to focus on the ongoing COVID-19 lockdown in Europe, and rising infection rate. This is a major market theme at the moment.
Another major market theme spilling over from the ongoing lockdown in Europe is pushing back of the reflation trade. Chair Powell talked down the prospect of rising inflation this week, which seems to have caused to flock back into the greenback.
Bond yields also started to rise again on Wednesday, which caused traders to sell the EURUSD pair. The bond market, which is generally considered to be a more accurate representation of the economy than equity or fx markets, is clearly not believing that inflation will stay muted.
With the technical breakdown in EURUSD and new bearish trend, as defined by the 200-day moving average, it may seem that retail traders are starting to sell the euro, however, the ActivTrader market sentiment tool indicates this is not the case.
In terms of sentiment, the ActivTrader platform shows that some 87 percent of traders are bullish towards the EURUSD. Sentiment has turned much more bullish since start of the week, where only 68 percent of traders were bearish towards the pair.
The extreme positive sentiment, despite the new technical shift certainly suggest that the current down move might just be getting warmed up. Watch out for more selling while the retail crowd remain extremely bearish.
EURUSD Short-Term Technical Analysis
According to the four-hour time frame a major range break has recent taken place, following yesterday’s break under the 1.1835 support level.
Looking at the size of the multi-week range break, between the 1.2000 and 1.1835 levels, the EURUSD pair could be about to drop towards the 1.1660 area.
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Watch out for more heavy technical selling towards the EURUSD pair while the price holds beneath the mentioned range break.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, the EURUSD pair has broken below its key 200-day moving average, at 1.1850 for the first time in approximately ten months.
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Should we see the EURUSD pair failing to reclaim its 200-day moving average watch out for more losses and change in positioning towards the pair, with the 1.1600 and 1.1400 levels the likely medium-term bearish targets.
