Analys från DailyFX
EUR/USD Faces a Volatile Week with ECB Thursday
EUR/USD has several signals flashing and it may be a volatile week for the pair as ECB hits the wires on Thursday. EUR/USD staged a reversal evidenced through an evening star candlestick formation on August 29. This pattern carved near the July 2012 low. As a result, it is a compelling pattern suggesting a correction lower may be imminent.
Despite this pattern, EUR/USD traders continue to be bearish the pair since April 18. Though the level of bearishness has ebbed at times, 70% of traders continue to be net bearish EURUSD. Used as a contrarian sign, this is a bullish signal. Check out the live trader sentiment reading.
The Elliott Wave pricing model we are following does show the technical pattern is incomplete to the upside. Taking all of the pieces above, the bearish evening star formation, the bullish sentiment signal, and the incomplete bullish Elliott Wave pattern, we anticipate a correction looming, though it may prove to be temporary.
According to Elliott Wave theory, it appears we finished the third wave (green iii wave on the chart) in the beginning of August. Third waves of an impulse tend to be the longest and strongest and this third wave traveled nearly 1400 pips. (For further study on Elliott Wave impulse patterns, watch this webinar recording.)
From a shorter term perspective, if the wave labeling is correct, then we anticipate a shallow correction back to the 1.16 handle followed by another retest of the 1.20 high to finish off the fifth and final wave of the sequence. I wouldn’t be surprised to see this fifth wave work higher to 1.22 as a couple wave measurements appear in that vicinity.
EURUSD appears to be carving a large expanded flat pattern. There are three Elliott Wave flat patterns you need to know and understand.
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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