US Dollar Price Outlook: EUR/USD Breaks Downtrend, Can it Rally?

EUR/USD PRICE OUTLOOK:

• The EUR/USD fundamental landscape stands relatively unchanged despite recent losses

• Technicals hint the pair may push higher in the days ahead after a recent downtrend was broken

• IG client sentiment reveals retail traders are net-short EUR/USD, which may suggest the pair will climb higher

US DOLLAR PRICE OUTLOOK: EUR/USD BREAKS DOWNTREND, CAN IT RALLY？

The US Dollar enjoyed a bout of strength to begin the year as EUR/USD endured a pullback toward support. While the brief reversal in price was hard to deny, it can be argued there were few changes in the underlying fundamental landscape to drive such a move. To be sure, a decline in risk appetite and damaged sentiment likely played a role as investors piled into the safety of the Greenback, but with sentiment repaired USD could face renewed pressure.

Further still, the technical EUR/USD landscape looks encouraging. While recent weakness may have spooked some bulls, it might be viewed as mere consolidation before a continuation higher by others. To that end, the series of higher-highs and higher-lows dating back to March remains intact and EUR/USD trades above a plethora of longer-term moving averages.

EUR/USD PRICE CHART: WEEKLY TIME FRAME (FEBRUARY 2018 – FEBRUARY 2021)

Much of the same can be seen on the daily chart. Trading narrowly beneath the 50-day moving average, golds recent breakout of the descending channel may allow it to take aim at overhead resistance. An imminent MACD crossover beneath the 0 line with price above the 200 exponential moving average lends further bullish evidence.

EUR/USD PRICE CHART: 4 – HOUR TIME FRAME (JANUARY 2020 – FEBRUARY 2021)

Initial areas of interest might reside at the January 2021 high near 1.2349 followed by resistance slightly higher around 1.2400. Northward still resides a series of horizontal trendlines that may look to keep price contained so trimming exposure at – or before - these levels might be prudent.

Conversely, the area slightly beneath 1.2000 might serve as an invalidation zone that if price were to breach before pushing higher, could undermine the shorter-term trade setup altogether. Another risk is continued consolidation around the 50-day simple moving average.

That said, EUR/USD appears tilted to the topside and IG client sentiment data reveals retail traders remain net-short the currency pair. Since we typically take a contrarian view to crowd sentiment, retail positioning might suggest EUR/USD will climb higher in the days ahead. Follow @PeterHanksFX on Twitter for updates on this pair.