- The Euro is breaking major trendline support, technical forecasts favor further weakness
- A substantial shift in retail forex trader sentiment suggests the EURUSD likely topped
- Build in FX Volatility prices favors continued Dollar strength
The first is simple: price is breaking to fresh multi-month lows, and a move below major trendline support suggests the multi-month uptrend may be coming to an end.
Euro Breaks to Multi-Month Lows and Trades Below Trendline Support
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
Our Senior Strategist writes that the Euro looks at risk as it breaks said trendline, and indeed a close below $1.3540 would cement the case for a larger decline.
The second key factor we’re watching is retail forex trader sentiment; yesterday we highlighted a major shift that warned of continued EURUSD weakness.
Major Shift in Retail Forex Sentiment Warns of Further EURUSD Declines
Data source:FXCM Speculative Sentiment Index data, Chart prepared by David Rodriguez
Finally, a sharp build in forex volatility prices warns that many traders are betting on and/or hedging against major currency moves. Indeed, a fairly strong correlation between our DailyFX Volatility Indices and the Dow Jones FXCM Dollar Index supports the case for USD strength.
US 10-Year Treasury Yield has Failed at Key Resistance and Looks at Risks of Declines
Data source: Bloomberg, Prepared by David Rodriguez
All in all it seems as though there are considerable downside risks to the Euro, particularly versus the US Dollar and (not shown) the Japanese Yen.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX