EUR/USD, EUR/JPY, EUR/GBP May Fall as Retail Traders Go Long

Euro, EUR/USD, EUR/JPY, EUR/GBP, Technical Analysis, Retail Trader Positioning – Talking Points

• Retail investors are increasingly betting that the Euro may strengthen ahead
• As a contrarian signal, IGCS warns EUR/USD, EUR/JPY, EUR/GBP may fall
• For further analysis, including fundamentals & technicals, see the recording

Taking a look at IG Client Sentiment (IGCS), retail traders are increasingly betting that the Euro may rally against the US Dollar, Japanese Yen and British Pound. This is boosting net-long exposure in EUR/USD, EUR/JPY and EUR/JPY. At times, IGCS can be a contrarian indicator. If this trend in positioning continues, then the Euro may be vulnerable in the coming days. For a full synopsis, check out the recording of my webinar above!

EUR/USD Sentiment Outlook – Bearish

The IGCS gauge shows that about 63% of retail traders are net-long EUR/USD. Upside exposure has increased by 6.24% and 15.74% over a daily and weekly basis respectively. Since most traders are long, this suggests that prices may continue falling. The combination of current and recent changes in market positioning offer a stronger bearish contrarian trading bias for EUR/USD.

EUR/USD Daily Chart

EUR/USD has reversed lower following a temporary breakout above December peaks. The pair was unable to breach a falling trendline from May 2021, which maintained the broader downside focus. Still, the Euro remains in a consolidative state. Resuming the downtrend entails a drop through the key 1.1195 – 1.1169 support zone. Getting there will see prices face a near term rising trendline from late November.

Chart Created in Trading View

EUR/JPY Sentiment Outlook – Bearish

The IGCS gauge shows that roughly 35% of retail investors are net-long EUR/JPY. Upside bets have increased by 4.5% and 14.21% over a daily and weekly basis respectively. Since the majority of traders are still biased lower, this hints prices may rise. However, recent shifts in positioning are warning that the EUR/JPY may reverse lower.

EUR/JPY Daily Chart

EUR/JPY recently closed at its lowest since late December, taking out the 20-day Simple Moving Average. Prices also closed under the 38.2% Fibonacci retracement level at 129.832. That has exposed the 23.6% level at 128.818 as immediate support. Below that sits the key 127.180 – 127.934 support zone, which has been helping to maintain the pair’s consolidation since last year.

Chart Created in Trading View

EUR/GBP Sentiment Outlook – Bearish

The IGCS gauge shows that about 82% of retail traders are net-long EUR/GBP. Downside exposure has decreased by 14.41% and 24.34% over a daily and weekly basis respectively. With most traders still being biased to the upside, this hints that prices may continue falling. The combination of overall and recent changes in positioning is offering a stronger bearish contrarian trading bias for EUR/GBP.

EUR/GBP Daily Chart

EUR/GBP continues to mark time around the upper boundary of the critical 0.8282 – 0.8339 support zone. The latter has its beginnings from 2020 lows. Positive RSI divergence does show that downside momentum is fading, which can at times precede a turn higher. In such case, keep a close eye on the 200-day SMA, which may maintain the dominant downside focus.

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from January 18th Report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter