EURO TAKES ADVANTAGE OF DOLLAR’S DIFFICULTIES

As if often the case, a new month brings about new fortunes. The US Dollar (via the DXY Index) has hit fresh two-year lows, largely driven by gains appreciated by its largest component, the Euro. To say the Euro is having a good start to a new month is an understatement. The Euro is starting off December on strong footing, with all EUR-crosses rallying thus far on December 1.

The slew of US policy officials, from Federal Reserve Chair Jerome Powell to the likely next Secretary of Treasury, Janet Yellen, calling for more fiscal stimulus – which would reduce US real yields, undermining the US Dollar’s relative appeal – has done the greenback no favors. But the FX market isn’t USD-centric, despite appearing to be the case; the Euro’s gains on the day are not just due to the dollar’s difficulties, but some behind the scenes machinations at the European Central Bank.

ECB SCANDAL MAY HINDER ABILITY TO TAMP DOWN EURO

In what may be a spat of meaningless news to the average market observer, the story that ECB policymaker Philip Lane has been providing exclusive commentary to a select group of individuals and institutions is certainly meaningful, if not out an outright scandal. But it’s the type of scandal that could handcuff the ECB from materially altering the Euro’s near-term path.

The point is, Philip Lane is a dove’s dove, perhaps the most outspoken dovish member at the ECB. And now that he is in the spotlight given his actions that provided privileged information to a select number of individuals and institutions, his voice may be sidelined in the near-term.

While the odds of more stimulus from the ECB have increased due to the disappointing economic data, it stands to reason that having Mr. Lane’s voice tamped down will reduce the likelihood that the ECB takes drastic measures like directly influencing the Euro exchange rate.

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (JANUARY 2018 TO DECEMBER 2020) (CHART 1)

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EUR/USD rates are attempting a bullish breakout above sideways range resistance in place since late-June. This comes after several weeks of EUR/USD rates maintaining their elevation above the downtrend from the 2008 and 2014 highs (from the all-time high).

EUR/USD rates are extending their gains above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is trending higher above its signal line, while Slow Stochastics have reached overbought territory. Momentum is bulls’ favor. Final targets for a simple doubling of the broader range would suggest gains through 1.2600 in the coming months.

IG CLIENT SENTIMENT INDEX: EUR/USD RATE FORECAST (DECEMBER 1, 2020) (CHART 2)

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EUR/USD: Retail trader data shows 23.51% of traders are net-long with the ratio of traders short to long at 3.25 to 1. The number of traders net-long is 24.91% higher than yesterday and 8.07% lower from last week, while the number of traders net-short is 13.00% higher than yesterday and 22.62% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (NOVEMBER 2019 TO DECEMBER 2020) (CHART 3)

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In mid-November, it was noted that “gains over the past week, largely fueled by surging global equity markets and the sell-off among safe havens like the Japanese Yen, has seen EUR/JPY trade back to the May and September trendline.” EUR/JPY rates have broken through said trendline today, trading to their highest level since early-September.

Momentum indicators remain bullish. EUR/JPY rates are above the daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is trending higher above its signal line, while Slow Stochastics have entered overbought condition. Gains towards the ascending trendline from the July 2012 and June 2016 lows, and ultimately the 2020 high at 127.08, can’t be ruled out through the end of the year.

IG CLIENT SENTIMENT INDEX: EUR/JPY RATE FORECAST (DECEMBER 1, 2020) (CHART 4)

EUR/JPY: Retail trader data shows 40.37% of traders are net-long with the ratio of traders short to long at 1.48 to 1. The number of traders net-long is 6.22% higher than yesterday and 41.56% lower from last week, while the number of traders net-short is 14.61% higher than yesterday and 30.26% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.

EUR/CHF RATE TECHNICAL ANALYSIS: DAILY CHART (NOVEMBER 2019 TO DECEMBER 2020) (CHART 5)

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EUR/CHF rates are advancing out of a symmetrical triangle in place since mid-May, which has helped produce a break of the downtrend from the 2018 and 2019 highs. EUR/CHF rates are testing the 23.6% Fibonacci retracement of the 2018 high/2020 low range at 1.0857.

The area between 1.0857 and 1.0878 has produced several tops in recent months, dating back to early-June. Gains through 1.0878 in the coming weeks would offer a strong sense of confidence that not only is the symmetrical triangle bullish breakout gaining pace, but that a longer-term bottoming effort has been commenced.

IG CLIENT SENTIMENT INDEX: EUR/CHF RATE FORECAST (DECEMBER 1, 2020) (CHART 6)

EUR/CHF: Retail trader data shows 46.74% of traders are net-long with the ratio of traders short to long at 1.14 to 1. The number of traders net-long is 8.51% lower than yesterday and 14.00% lower from last week, while the number of traders net-short is 13.08% higher than yesterday and 4.55% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/CHF prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/CHF-bullish contrarian trading bias.