The euro is in the middle of its trading range for August, but technical signals suggest a breakout and potential trending move are coming.
Positioning remains a negative factor for the euro, with Morgan Stanley's FX Positioning Tracker on Aug 24 showing USD shorts and EUR longs as the most popular positions among major currencies.
This was supported by the latest IMM data for Aug 12-18 nL1N2FN1Y8. However, timing is everything in markets.
The U.S. dollar's positive correlation with risk sentiment last week proved short-lived. Tuesday's record closes on the S&P 500 and Nasdaq, supported by reduced U.S.-China trade tensions nL1N2FR01E and COVID-19 treatment hopes nL4N2FR1SR, sent the dollar broadly lower.
EUR/USD rose 0.4% as the risk rally undermined the need for safe-haven USD. When correlations break down, focus turns to the charts.
Technically the 1.1695-1.1966 EBS range has dominated in August, and EUR/USD currently trades at 1.1835.
Daily signals show little bias, 5, 10 and 21 daily moving averages coil, while momentum studies conflict.
Contracting 21-day Bollinger bands provide the key: they are now at tight 1.1723-1.1912 levels, which often happens before a trending move, as seen in July.
Thus though there is directional uncertainty, when the breakout comes, don't trade the range - go with the flow.
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