Euro Forecast: Bull Flags Take Shape In EUR/JPY, EUR/USD Rates

EURO HOLDING ITS OWN AS RISK APPETITE IMPROVES

The Euro has not been a top-performing major currency this week, trailing some of its major peers as global risk appetite improves around Brexit and US fiscal stimulus headlines. That’s not to the Euro’s discredit; traders are looking for higher-yielding and growth-linked assets like the commodity currencies (EUR/AUDEUR/CADEUR/NZD).

But two EUR-crosses have retained their bullish posture, and bull flags in both EUR/JPY and EUR/USD rates that have been carved out thus far through December suggest more gains may be around the corner. With the DXY Index, of which the Euro is the largest component at 57.6%, heading to fresh yearly and two-year lows, the prevailing macro environment is sinking safe havens like the US Dollar (as well as the Japanese Yen).

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020) (CHART 1)

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EUR/USD rates are in the midst of carving out a bull flag following the bullish breakout above sideways range resistance in place since late-June. It remains the case that “final targets for a simple doubling of the broader range dating back to late-June would suggest gains through 1.2600 in the coming months.” The more near-term range carved out thus far in December between 1.2059 and 1.2178 (119-pips) suggests an immediate upside target of 1.2297.

Contextually, EUR/USD rates have been holding above the downtrend from the 2008 and 2014 highs (from the all-time high), and EUR/USD rates are back above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is still trending higher above its signal line, while Slow Stochastics are holding in overbought territory. A bullish breakout may be around the corner.

IG CLIENT SENTIMENT INDEX: EUR/USD RATE FORECAST (DECEMBER 15, 2020) (CHART 2)

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EUR/USD: Retail trader data shows 29.87% of traders are net-long with the ratio of traders short to long at 2.35 to 1. The number of traders net-long is 7.49% lower than yesterday and 9.87% lower from last week, while the number of traders net-short is 0.86% lower than yesterday and 5.19% lower from last week.

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