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EUR/USD Outlook: Rates to Watch as RSI Holds in Overbought Zone

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EUR/USD Rate Talking Points

EUR/USD consolidates after clearing the September 2018 high (1.1815) at the end of July, nevertheless the Relative Strength Index (RSI) continues to sit in overbought territory, with the persistent reading above 70 indicative of a further appreciation in the exchange rate like the behavior seen in June.

EUR/USD Outlook: Rates to Watch as RSI Holds in Overbought Zone

EUR/USD initiates a series of higher altitudes and lows as the idea retraces the pullback from your 2020 high (1.1909), and current market situations may keep the exchange amount afloat as the extreme looking at in the RSI bears into August.

It is always to be seen if the RSI will continue to keep above 70 ahead of the US ALL Non-Farm Payrolls (NFP) review as the appreciation in EUR/USD continues to become accompanied by crowding behavior in the Greenback even though the DXY index plummets for 6th consecutive weeks.

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment report discloses retail traders have been net-short EUR/USD since mid-May, with the latest update showing 35.84% of traders currently net-long the pair as the ratio of traders short to long sits at 1.79 to 1.The number of traders net-long will be 12.46% higher than the other day and 1.75% cheaper from last week, while the amount of traders net-short is seven.09% lower than yesterday and even 4.27% lower coming from last week.

Recent price actions in EUR/USD appears to be fueling net-long curiosity as it initiates several higher highs and lows during the first week of September, while the decline in net-short positions suggests stop-loss orders are being triggered as the exchange rate retraces the pullback from the 2020 high (1.1909).

Looking ahead, a further shift in EUR/USD positioning may energy typically the rebound in the IG Client Sentiment list it returns from the serious reading in June, nonetheless current market conditions may possibly keep the exchange rate in hand as the RSI keeps above 70, while the crowding behavior in the US Dollar carries into August.

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in imagination, a ‘golden cross’ brought in EUR/USD towards the finish of June as typically the 50-Day SMA (1.1382) crossed above the 200-Day SMA (1.1097), with the going averages extending the positive hills into the second half of the calendar year.
  • At the same time, a hokum flag formation panned out and about following the failed attempt to close below the 1.1190 (38.2% retracement) to 1.1220 (78.6% expansion) region in This summer, with the Relative Strength Directory (RSI) helping to validate the continuation pattern as the oscillator bounced together trendline support to conserve the upward trend coming from March.
  • Will keep an in depth eye on the RSI as it sits in overbought territory for the third period in 2020, with the high price action in EUR/USD likely to persist as long as the warning holds above 70 among the behavior seen in August.
  • Need a closing value above the Fibonacci overlap close to 1.1810 (61.8% retracement) to 1.1850 (100% expansion) to accept the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) area on the radar, with the future area of interest coming in close to 1.2080 (78.6% retracement) to 1.2140 (50% retracement).
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— Compiled by David Song, Currency Strategist

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