Prepping for a EUR/USD squeeze given bearish sentiment
Everyone wants to dunk on the euro and buy dollars right now, explaining why EUR/USD continues to grind lower. With signs of US economic exceptionalism evident again, the number of Fed rate cuts expected this cycle continues to dwindle just as the amount of easing from the ECB ramps up.
USD looks great, EUR does not. But that’s now priced in, meaning we may need to see a continuation of those trends to see this downside flush extend. Because if they don’t, EUR/USD could be due a squeeze.
With the main risks events this week arriving on Thursday with the ECB interest rate decision, which is nearly fully priced for a 25 basis point cut, and jobless claims and retail sales figures in the US, there must surely be a temptation among traders who are short to reduce or close their bearish positions, suggesting we may see some form of reversal.
On the charts, EUR/USD finds itself back in familiar territory, testing and bouncing from a long-running downtrend dating back to July 2023. Given the initial interaction with the level, which has been respected all bar one false break in August, it provides a potential level for a long setup looking for some short-covering and/or squeeze.
Those considering longs could buy ahead of the downtrend with a stop below either Monday’s low around 1.0890 or the 200-day moving average located at 1.08743. Potential trade targets include 1.0955 or 1.1000.
Momentum indicators such as RSI (14) and MACD continue to generate bearish signals, meaning for the trade to succeed, it will need to go against the prevailing trend. That underlines why risk management should be front and centre of those considering the setup.
Good luck!
DS
USD looks great, EUR does not. But that’s now priced in, meaning we may need to see a continuation of those trends to see this downside flush extend. Because if they don’t, EUR/USD could be due a squeeze.
With the main risks events this week arriving on Thursday with the ECB interest rate decision, which is nearly fully priced for a 25 basis point cut, and jobless claims and retail sales figures in the US, there must surely be a temptation among traders who are short to reduce or close their bearish positions, suggesting we may see some form of reversal.
On the charts, EUR/USD finds itself back in familiar territory, testing and bouncing from a long-running downtrend dating back to July 2023. Given the initial interaction with the level, which has been respected all bar one false break in August, it provides a potential level for a long setup looking for some short-covering and/or squeeze.
Those considering longs could buy ahead of the downtrend with a stop below either Monday’s low around 1.0890 or the 200-day moving average located at 1.08743. Potential trade targets include 1.0955 or 1.1000.
Momentum indicators such as RSI (14) and MACD continue to generate bearish signals, meaning for the trade to succeed, it will need to go against the prevailing trend. That underlines why risk management should be front and centre of those considering the setup.
Good luck!
DS
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