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Oct 02 - 05:55 AM

EUR/USD - COMMENT-EUR/USD Likely To Rise, But There's A Worrying Twist

By Jeremy Boulton  —  Oct 02 - 05:20 AM

EUR/USD has consolidated a big rise close to the higher end of its rally.
That's a bullish sign and it's a strong signal given the huge amount of longs, but a chart pattern far below is worrying.

The daily cloud twists around 1.1065 and that twist lasts until that start of 2021.
Twists can attract, and while a drop to 1.11 seems unlikely, that makes it a risk worth hedging.
Few traders cover the risk of the unexpected, effectively increasing its probability.

A drop of that magnitude could also improve the chances for a bigger EUR/USD rally, which by then would be unencumbered by the overhang of massive speculative longs.
1.1162 is a 61.8% retrace of this year's rise.

It's more likely longs will be pared with EUR/USD trapped 1.15-20, eventually reaching 1.2600.
For now, it may be worth the relatively small expense of an out-of-the-money option to cover risk of that cloud twist.
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Source:
Refinitiv IFR Research/Market Commentary

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