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Euro forecast: Will EUR/USD, EUR/JPY reverse lower as retail traders go long?


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The euro could be vulnerable to selling pressure as retail traders increase their long exposure in EUR/USD and EUR/JPY.

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Source: Bloomberg
 
 

The Euro has been consolidating against its major counterparts as of late, could this dynamic change next? It appears that retail traders are starting to increase their upside exposure in the single currency, betting to the upside in pairs like EUR/USD and EUR/JPY. This can be seen by examining IG Client Sentiment (IGCS), which tends to function as a contrarian indicator. Is this a sign of weakness to come for the Euro? For a deeper dive into the fundamentals, check out the webinar recording at the beginning of the article!

EUR/USD sentiment outlook - bearish

The IGCS gauge shows that about 59% of retail traders are net-long EUR/USD. Since the majority of traders are biased to the upside, this suggests that prices may continue falling. This is as upside exposure increased by 2.83% and 6.80% compared to yesterday and last week respectively. With that in mind, the combination of current and recent changes in sentiment offers a stronger bearish contrarian trading bias.

 
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Source: DailyFX

EUR/USD technical analysis – daily chart

On the daily chart, EUR/USD has been consolidating under the 1.0758 – 1.0806 inflection zone. It seems upside momentum is slowing from the early May bounce, a sign of weakness. A falling trendline from February is also maintaining the downside technical bias. Confirming a breakout under immediate support at 1.0627 could open the door to revisiting lows from 2017 (1.0340 – 1.0388). Otherwise, clearing resistance places the focus on the falling trendline from last year.

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Source: TradingView

EUR/JPY sentiment outlook - bearish

The IGCS gauge shows that about 34% of retail traders are net-long EUR/JPY. Since most traders remain biased to the downside, this hints that the pair may continue rising ahead. However, upside positioning has increased by 12.44% and 31.89% versus yesterday and last week respectively. With that in mind, recent changes in sentiment warn that the current price trend may reverse lower.

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Source: DailyFX

EUR/JPY technical analysis – daily chart

From a technical standpoint, EUR/JPY remains strongly biased to the upside. The pair confirmed a breakout above the 139.14 – 140.00 resistance zone, exposing the peak from December 2013 at 145.69. But, immediate resistance appears to be the 61.8% Fibonacci extension at 142.30. Breaking above the latter would open the door to revisiting the December 2013 high. Otherwise, a turn lower would place the focus back on the former resistance zone, perhaps establishing itself as new support.

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Source: TradingView

Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco
08 June 2022

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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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