EUR/USD Remains Vulnerable As ECB Continues To Widen Pace Of PEPP

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment Report shows 54.83% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.21 to 1.

The number of traders net-long is 6.78% higher than yesterday and 13.17% higher from last week, while the number of traders net-short is 16.31% higher than yesterday and 10.16% lower from last week. The rise in net-long interest has fueled the shift in retail sentiment as 51.89% of traders were net-long EUR/USD on March 19, while the decline in net-short position could be a function of profit taking behavior as the exchange rate trades in a narrow range ahead of the end of the month.

With that said, the decline from the January high (1.2350) may turn out to be a change in EUR/USD behavior rather than a correction in the broader trend as the exchange rate slips below the 200-Day SMA (1.1860) for the first time since May 2020, and the Euro may face headwinds throughout the first half of the year as the ECB continues to ramp up the pace of the PEPP.


Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the EUR/USD correction from the September high (1.2011) proved to be an exhaustion in the bullish price action rather than a change in trend following the string of failed attempts to close below the 1.1600 (61.8% expansion) to 1.1640 (23.6% expansion) region, with the Relative Strength Index (RSI) reflecting a similar dynamic as the oscillator broke out of the downward trend to recover from its lowest readings since March.
  • However, EUR/USD has reversed course following the failed attempt to test the April 2018 high (1.2414), with the exchange rate extending the decline from the January high (1.2350) to slip below the 200-Day SMA (1.1860) for the first time since May 2020.
  • In turn, EUR/USD may continue to track the descending channel from earlier this year as the 50-Day SMA (1.2026) develops a negative slope, with the RSI highlighting a similar dynamic as it retains the downward trend established at the start of 2021.
  • However, recent developments in the RSI indicate that the bearish momentum may abate going into April as it appears to be reversing ahead of oversold territory, with EUR/USD at risk of facing range bound prices amid the string of failed attempts to break/close below the 1.1760 (38.2% expansion) region.
  • A move back above the 1.1810 (61.8% retracement) area may push EUR/USD towards 1.1860 (61.8% expansion), with the next region of interest coming in around 1.1920 (78.6% expansion).
  • Nevertheless, a break/close below 1.1760 (38.2% expansion) brings the Fibonacci overlap around 1.1700 (23.6% expansion) to 1.1710 (61.8% retracement) on the radar, with the next area of interest coming in around 1.1660 (38.2% expansion) to 1.1680 (50% retracement).
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