US DOLLAR, EUR/USD TALKING POINTS:

• Both the US Dollar and EUR/USD remain in the midst of extreme moves.
• USD is overbought and EUR/USD is oversold – for how long can each market continue?
• Retail sentiment remains stretched in EUR/USD as retail traders continue to try calling a bottom.

US DOLLAR STRETCHES HIGHER DESPITE OVERBOUGHT BACKDROP

Dollar bulls have come back to work after the holiday weekend in the United States, pushing the currency up to yet another fresh four-month-high. As looked at last week, the US Dollar is trading at its most overbought levels (via Daily RSI) since August of 2018. This week’s economic docket is rather light on US drivers, with the primary highlights coming from tomorrow afternoon’s meeting minutes.

Data out of the US has been rather strong of recent, looking at last week’s CPI print coming in at an annualized 2.5%, combined with earlier-month releases of Manufacturing and Services ISM, combined with a strong all-around NFP report at the beginning of this month. Nonetheless, market expectations are for more softness out of the FOMC later this year, with an approximate 84.5% probability of at least one cut by the 2020 close. This can put even more emphasis on FOMC-related items, particularly the meeting minutes from the January rate decision; which was one of the few variables that was able to inspire a bit of USD-weakness in its aftermath. The Dollar ticked down for two days following that rate decision, before buyers went into full launch mode around the February open to carry the currency up to fresh four-month-highs.

US DOLLAR DAILY PRICE CHART

USD on Tradingview

Going along with that move of aggressive USD-strength has been a sharp downside run, including a breakout in EUR/USD. With the world’s most popular currency pair currently trading at fresh two-month-lows, and with retail traders still seemingly trying to call a bottom as evidenced by the current imbalance of 74% of retail traders holding long positions in EUR/USD, there may be more weakness in this theme.

As of now, EUR/USD is finding support at the 78.6% Fibonacci retracement of the 2017-2018 major move. Underneath current price action presents a tough zone, as some unfilled gap remains from April of 2017, and that runs down to approximately 1.0725.

EUR/USD WEEKLY PRICE CHART

EUR/USD on Tradingview