EUR/USD Price Forecast – Limited Upside as US Treasury Yields Continue to Climb

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EUR/USD Price, Chart, and Analysis

• The Euro remains under pressure from the US bond market.
• Retail traders remain long EUR/USD but the outlook is mixed.

The yield on the benchmark UST 10-year continues to move higher and is now within 10 basis points of levels last seen in January 2020. The latest move higher in yields was prompted by commentary from Federal Reserve governor Christopher Waller who said yesterday that if inflation remained at its current elevated level, then interest rates hikes may need to be bought forward to dampen down price pressures. Governor Waller also said that the Fed should start cutting back its bond purchases (tapering) in November. The markets are currently pricing a 25bp rate hike in the US in September next year with another 25bps fully priced in by December 2022. In contrast, the ECB is seen hiking rates by 10bps in September.

The daily EUR/USD chart remains weak despite the 100 pip bounce back over the last few days. All three simple moving averages are negative with the 20-/50-day sma cross at the end of September accelerating the move lower. The pair are currently back above the short-dated sma, which may provide some support, but a move back below would suggest that the recent 1.1525 low would come under pressure again.

EURO (EUR/USD) DAILY PRICE CHART OCTOBER 20, 2021

If we look at the weekly EUR/USD chart we can see that the pair are now in a range defined by the 50% and 38.2% Fibonacci retracement levels produced by the January 2017 – February 2018 22 big figure rally. This zone looks set to hold leaving 1.1710 as resistance to any further push higher.

EURO (EUR/USD) WEEKLY PRICE CHART OCTOBER 20, 2021

Retail trader data show 63.39% of traders are net-long with the ratio of traders long to short at 1.73 to 1. The number of traders net-long is 2.03% higher than yesterday and 1.99% lower from last week, while the number of traders net-short is 2.08% higher than yesterday and 7.44% lower 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.Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

What is your view on EUR/USD – bullish or bearish?

 

By Nick Cawley, Strategist, 20th October 2021. DailyFX