Market update:Euro two-day rally sees retail bets become slightly more bearish, will EUR/USD rise?

[MongiIG]

Euro experienced best two days since the middle of September; recently, retail traders have started to build downside bets and while that may be a bullish signal, downtrend remains intact

 

Source: Bloomberg

 Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Friday 06 October 2023 05:31

The Euro climbed for a second trading session, marking the best two-day performance since the middle of September. Meanwhile, it seems retail traders are starting to slowly increase downside exposure. This can be seen by looking at IG Client Sentiment (IGCS), which frequently functions as a contrarian indicator.

With that in mind, will the exchange rate have further room to rally?

EUR/USD sentiment outlook – bullish

The IGCS gauge shows that about 65% of retail traders are net-long EUR/USD. Since most of them remain biased higher, this continues to hint that prices may continue falling down the road. That said, we have seen downside bets increase by 7.05% and 14.98% compared to yesterday and last week, respectively. With that in mind, recent shifts in positioning hint that the Euro may reverse higher.

IG client sentiment chart

 

Source: DailyFX

Euro daily technical analysis

Despite developments in retail trader bets, the technical outlook for EUR/USD remains challenging from the bullish perspective. The key obstacle is a falling trendline from July which is maintaining the broader downside focus. As such, while the Euro may continue higher in the near term, it is going to take further upside progress to overturn the bearish technical bias.

That said, we did experience positive RSI divergence recently, showing that downside momentum was fading before retail bets started to focus on more downside exposure. Before reaching the trendline, keep a close eye on the 61.8% Fibonacci extension level at 1.0631. Meanwhile, in the event prices turn lower, the 100% level at 1.0436 seems to be key support.

Euro daily chart

 

Source: TradingView

 

 

 

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