EUR/USD FX price forecast: upside breakout in play

[MongiIG]

The EUR/USD forex pair has now confirmed an upside breakout in line with the longer-term trend, although the move sees the price trading in overbought territory.

Source: Bloomberg

 

Forex EUR/USD Euro United States dollar Technical analysis

 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Friday 14 April 2023 

EUR/USD – Indicator analysis

Source: IG

The 20-day simple moving average (20MA) (red line) has recently crossed above the 50-day simple moving average (50MA) (green line). This is a suggestion that the short to medium trend is once again aligned with the longer-term uptrend. The long-term trend is gauged by the price trading firmly above the 200-day simple moving average (200MA) (blue line).

The 20MA trading above the 50MA which in turn trades above the 200MA is what is considered proper order in technical analysis confirming that the short-, medium- and long-term trends are aligned.

The stochastic does however trade in overbought territory. This is a suggestion that perhaps the EUR/USD’s short-term gains have become overheated, although this signal is considered to carry less precedence than the underlying trend bias. Also, counter trend indications from oscillators such as the stochastic are considered less reliable than signals aligned with the trend.

EUR/USD - Price analysis

Source: IG

The EUR/USD has now broken through resistance at the 1.1035 level. The upside breakout sees little in the way of resistance until the high at 1.1180. This in turn becomes the upside target favoured from the breakout. Traders who find long entry into the initial breakout might consider using a close below the 1.0965 level as a stop loss indication for the trade.

While the initial breakout is valid, our preferred approach to finding long entry is to look for the first pullback from each new high. This approach does find further favour from the fact that the price trades in overbought territory currently. Should a pullback occur, we would look for the price to find support at either the 1.0965 level or at the dotted black trend line on our chart before entering new long positions on the index.

EUR/USD – IG client sentiment

Source: IG

As of the morning of the 14th of April 2023, the majority (70%) of IG clients with open positions on the EUR/USD expect the price to fall in the near term, while 30% of IG clients with open positions on the index expect the price to rise in the short term.

In summary

• The short medium- and long-term trends (as gauged by the moving averages) are considered up
• The EUR/USD is however also looking overbought at current levels
• The trend bias is considered to take precedence over the overbought signal
• The EUR/USD break of resistance suggests 1.1180 as a possible target
• Most IG clients with open positions expect the price to fall in the near term