Jump to content

EUR/USD Price Outlook: Dollar Recovery Threatens Euro Gains

Recommended Posts

EUR/USD Analysis:

  • Dollar recovery looks to end EUR/USD upside; key technical levels assessed
  • EU inflation data, ECB speeches, ZEW sentiment and PMI data ahead
  • IG client sentiment at odds with large speculators “smart money”
EUR: The funding currency | Article | ING Think

EUR/USD has been climbing steadily within an ascending channel until Wednesday, when the US dollar experienced a sell-off. Despite US inflation reaching a near 40 year high - coming in at the forecasted figure of 7% - the release was interpreted by markets as a bit of a letdown, sending the dollar tumbling.

Markets had already priced in an aggressive Fed response to rising inflation, propping up the dollar, and therefore, anything less than a surprise above 7% was likely to disappoint. The EUR/USD pair passed 1.1400 with ease but fell short of 1.1500, proving too hot to handle


The economic calendar has started to fill up in the third full week of January. Today we have a Eurogroup meeting discussing economic adjustments and resilience among other topics. Tomorrow we have the ZEW economic sentiment index and Wednesday the all important core inflation for the Eurozone – which is not expected to be a market mover as the headline figure is where energy and food costs are likely to show a much higher reading of inflation.

The week comes to a close with speeches from a couple of high profile ECB speeches and flash Markit manufacturing PMI data.

EUR/USD Price Outlook: Dollar Recovery Threatens Euro Gains

Customize and filter live economic data via our DaliyFX economic calendar


After a failed attempt at 1.1500, the upward momentum in EUR/USD seems to have faded. Bear in mind that most of the recent move to the upside could easily be attributed to a weaker dollar as opposed to Euro strength so naturally, we should be on the lookout for stabilization in the dollar which looks to have been achieved on Friday last week.

If the dollar is to recover last week’s losses, this may propel EUR/USD lower once again. A breakdown of the 1.1400 level brings the 1.1350 level into focus with the more distant 1.2750 level the next major level of support.

A hold of 1.1400 keeps the bullish narrative alive, for the time being at least. Near-term resistance is rather difficult to come by and therefore the next hurdle for the pair remains the recent high at 1.1483, followed by the 1.1500 psychological level.

4-hour EUR/USD Chart

EUR/USD Price Outlook: Dollar Recovery Threatens Euro Gains

Source: IG, prepared by Richard Snow



By taking a look at the most recent CFTC data from the commitments of traders report, there is still a significant net-long positioning on the US dollar index where the Euro makes up 57.6% of the index. The data corresponds to hedge funds and other large speculators that are required to report trades to the CFTC. The continued long positioning suggests that the outlook on the dollar is still bullish despite the recent sell-off which could weigh on the EUR/USD pair.

US Dollar Index and Net Positions (Cot data from CFTC)

EUR/USD Price Outlook: Dollar Recovery Threatens Euro Gains

Source: CoT data via the CFTC, Refinitiv, prepared by Richard Snow

In contrast, IG client sentiment shows more than 56% of traders are long EUR/USD (bullish Euro) with a massive increase in net longs from yesterday (+17.55%).

EUR/USD Price Outlook: Dollar Recovery Threatens Euro Gains

  • Retail trader data shows 56.15% of traders are net-long with the ratio of traders long to short at 1.28 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.
  • The number of traders net-long is 17.55% higher than yesterday and 4.16% higher from last week, while the number of traders net-short is 7.76% higher than yesterday and 2.36% lower from last week.
  • Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes suggests a EUR/USD-bearish contrarian trading bias.
Written by Richard Snow for DailyFX.com. 17th Jan 2022.
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
  • Create New...