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Talking Points

  • EUR/USD rally eyeing confluence resistance ahead of ECB
  • Updated targets & invalidation levels

EUR/USD 120min

Technical Outlook:

EUR/USD has been trading within the confines of this ascending pitchfork formation extending off the December / January lows with the rally continuing to hold below the 50-line. Heading into tomorrow’s European Central Bank rate decision (ECB) the advance is at risk near-term below confluence resistance at 1.0741(100% extension) with the broader focus weighted to the topside while within this ascending formation.

Interim support rests with the median-line backed by 1.0630 and more significant confluence support at 1.0575(we’ll want to adjust this retracement in the event price makes a new high). A breach above resistance targets subsequent topside objectives at the March swing low (1.0822) & the 2016 open at 1.0872.

After extending the QE deadline in December, the central bank is widely expected to maintain current policy at the first 2017 interest rate decision. Keep in mind, the depreciation in the Euro exchange rate accompanied by signs of stronger price growth may force the ECB to soften its dovish tone and could further support the near-term recovery in EUR/USD.

  • A summary of the CS Capital Market FX reports Speculative Sentiment Index (SSI) shows traders are short EUR/USD- the ratio stands at -1.42 (41% of traders are long)- weak bullish reading
  • Long positions are 8.4% higher than yesterday but 20.6% below levels seen last week
  • Short positions are 5.4% lower than yesterday but 27.6% above levels seen last week
  • Open interest remains stable at 6.4% above its monthly average.
  • The current dynamic of waning short exposure leaves the immediate rally vulnerable below near-term resistance but the broader shift in sentiment keeps the focus higher. Look for a continued build in short positioning in the coming days to fuel the topside bias. Note that recent

 

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