EUR/USD Breakout Stalls As RSI Reverses Ahead Of Overbought Territory

Nevertheless, the breakout in EUR/USD may continue to coincide with the renewed tilt in retail sentiment as the crowding behavior from 2020 resurfaces, with the IG Client Sentiment report showing 37.41% of traders currently net-long the pair, as the ratio of traders short to long stands at 1.67 to 1.

Image of IG Client Sentiment for EUR/USD rate

The number of traders net-long is 8.77% higher than yesterday and 8.57% higher from last week, while the number of traders net-short is 0.92% lower than yesterday and 2.22% lower from last week. 

The rise in net-long positions has helped to alleviate the tilt in retail sentiment, as only 34.68% of traders were net-long EUR/USD ahead of the FOMC rate decision, while the decline in net-short position could be a function of stop-loss orders getting triggered as the exchange rate climbed to a fresh monthly high (1.2150) earlier this week.

With that said, the break of the descending channel from earlier this year instills a constructive outlook for EUR/USD, but the lack of momentum to test the February high (1.2243) may generate a larger pullback in the exchange rate as the Relative Strength Index (RSI) reverses ahead of overbought territory.

EUR/USD Rate: Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

Keep in mind, EUR/USD established a descending channel following the failed attempt to test the April 2018 high (1.2414), but the decline from the January high (1.2350) may turn out to be a correction in the broader trend rather than a change in market behavior as the exchange rate trades back above the 50-Day SMA (1.1955) to break out of the bearish trend.

The Relative Strength Index (RSI) showed a similar dynamic as the oscillator reversed ahead of oversold territory to break out of a downward trend, but failure to push above 70 warns of a larger pullback in EUR/USD as the bullish momentum appears to be abating.

Lack of momentum to push above the Fibonacci overlap around 1.2140 (50% retracement) to 1.2170 (78.6% expansion) has pulled EUR/USD back towards the 1.2080 (78.6% retracement) region, with the next area of interest coming in around 1.2010 (100% expansion). A break/close below 1.2010 (100% expansion) is needed to open up the overlap around 1.1960 (61.8% expansion) to 1.1970 (23.6% expansion), which largely lines up with the 50-Day SMA (1.1955), with the next area of interest coming in around 1.1920 (78.6% expansion).

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