Euro Forecast Overview:
- As global bond yields have steadied following their spike starting in late-February and continuing into late-March, German Bund yields have declined by less than their UK Gilt or US Treasury counterparts, giving the Euro a slight yield advantage in the near-term.
- EUR/JPY remains on the most convincing bullish path, EUR/USD remains within the downtrend from the intrayearly high (ahead of returning to a key zone of support and resistance for the past nine-months), and EUR/GBP may be working its way to former consolidation resistance following its false bearish breakout.
- Per the IG Client Sentiment Index, the Euro has a bullish bias in the short-term.
Euro Starts April on Strong Footing
The first few months of 2021 proved disappointing for the Euro, but the arrival of April and 2Q’21 brings about the beginning of a seasonally strong period for the single currency. In fact, with the worst month of the year for the US Dollar and the best month of the year for the Euro now under way, there is a quantitative tailwind that may help the Euro claw back some of its early-year losses.
GERMAN BUND, JGB, UK GILT, & US TREASURY 10-YEAR YIELDS: WEEKLY CHART (APRIL 2014 TO APRIL 2021) (CHART 1)
Helping bolster the Euro’s case for a rebound through the first full week of April has been a small but meaningful shift in interest rate differentials that support recent strength in EUR/JPY, EUR/GBP, and EUR/USD: while Japanese government bond yields, UK Gilt yields, and US Treasury yields have pulled back from their yearly highs, German Bund yields have pulled back less.
EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to April 2021) (CHART 2)
EUR/USD rates have broken their downtrend from the February and March swing highs, but the pair is once again on approach to a cluster of Fibonacci levels that have proved to be a cluster of both support and resistance going back to last July: the 76.4% Fibonacci retracement of the 2019 low/2020 high range at 1.1945; the August and September 2020 highs at 1.1967 and 1.2011, respectively; and the 23.6% Fibonacci retracement of the 2017 low/2018 high range at 1.2033.
EUR/USD rates are above their daily 5-, 8-, 13-, and 21-EMA envelope, but the quad of moving averages is not in bullish sequential order. Daily MACD is trending higher, but remains below its signal line, while daily Slow Stochastics have started to climb through their median line. Momentum is starting to gather pace in a bullish manner, which means we can’t dismiss the fact that recent tailwinds may lead to a test of the 1.1945/1.2033 area. Unless the pair climbs through this zone, it remains doubtful that EUR/USD has significant gains ahead of it.
IG Client Sentiment Index: EUR/USD Rate Forecast (April 7, 2021) (Chart 3)
EUR/USD: Retail trader data shows 43.95% of traders are net-long with the ratio of traders short to long at 1.28 to 1. The number of traders net-long is 15.97% lower than yesterday and 24.97% lower from last week, while the number of traders net-short is 19.16% higher than yesterday and 23.69% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.
EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to April 2021) (CHART 4)
In a prior EUR/JPY rate forecast it was noted that “by returning into this decade-plus symmetrical triangle, EUR/JPY rates have setup the technical posture to trade higher into 130.00 in the near-term, before attempting to break the downtrend from the 2008 (all-time high) and 2014 highs.” Price action in March saw EUR/JPY rates challenge the downtrend from the all-time high, but there hasn’t been a decisive break yet: a bull flag has formed between 128.19 and 130.66. More gains may be ahead yet; EUR/JPY has the most bullish technical structure among the three pairs discussed in this report.
IG Client Sentiment Index: EUR/JPY Rate Forecast (April 7, 2021) (Chart 5)
EUR/JPY: Retail trader data shows 37.91% of traders are net-long with the ratio of traders short to long at 1.64 to 1. The number of traders net-long is 10.92% higher than yesterday and 3.42% lower from last week, while the number of traders net-short is 16.53% higher than yesterday and 15.88% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.
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EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (February 2020 to April 2021) (CHART 6)
In a prior review of EUR/GBP rates, it was noted that “a test of the March 2020 low at 0.8593 seems likely in the days ahead.” While this occurred, ultimately resulting in a bearish breakout of the descending triangle that formed throughout March, the breakout has failed and reversed course; EUR/GBP is back above descending trendline resistance, suggesting that a return back to consolidation resistance is possible at 0.8731. It may be the case that the pair continues to rise in the near-term before traders take another stab at a shorts.
IG Client Sentiment Index: EUR/GBP Rate Forecast (April 7, 2021) (Chart 7)
EUR/GBP: Retail trader data shows 57.55% of traders are net-long with the ratio of traders long to short at 1.36 to 1. The number of traders net-long is 14.61% lower than yesterday and 20.37% lower from last week, while the number of traders net-short is 3.69% lower than yesterday and 0.89% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.
Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/GBP price trend may soon reverse higher despite the fact traders remain net-long.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.