Matt Simpson, CFTe, MSTA
CityIndex
Whilst EURUSD is within a clear downtrend it is approaching several key levels if support, after having seen a reduction in Net Short positioning according to data supplied by CFTC.
Technicals:
The Weekly Chart is within a clear downtrend but has not witnessed a decent retracement sinze the 1.40 highs. The daily charts show that the bearish momentum is beginning to slow which raises the potential for a snapback. Also take note of the DPO (Detrended Price Oscillator) which shows price could be a little over-extended from it's 20-week MA. It does however provide a little extra room of downside before a smap-back.
COTS data suggests a reduction of Shorts as the Net long/short indicator has edged up towards zero, whilst Open Interest has reduced from last week. We also have to remember that we are at significantly high levels on NET short and have to wonder if too many traders are on the same side of the market, which would result in a reversal regardless of the fundamentals.
1.29 houses several confluences of resistance which I expect to be quite reliable. Any break above here should target 1.30, which itself could see prices capped and for price to range between 1.282-30.
The Strategy:
I'll be seeking bearish setups on any rallies towards 1.29 to target 1.275 and try not to 'outstay my welcome' on any short positions. I am on the lookout for a firm rejection of support and for a sizeable retracement ot occue. The US Index could do with a retracement which would help support AUDUSD, EURUSD and GBPUSD.
Potential Catalyst:
Draghi is set to testify tonight. With the talk of QE, as expected, theere are more questions than answers. At present it is not known when it willeven launch the QE program, let alone whch assets (or how much of them) will be purchased. There is a string argument for Euro strength once QE is launched which will have the unfortunate side effect (for Draghi) of seeeing money flow into the Eurozone, despite negative interest rates. Even if this does not create a new bullish run it would at the very least slow the EURUSD decline down.
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