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Jul 26 - 09:55 PM

EUR/USD - COMMENT:EUR/USD Trends Higher With Warning Lights Flashing

By John Noonan  —  Jul 26 - 08:10 PM

The EUR/USD is clearly trending higher, but the risks of a correction lower are building.
The latest IMM data shows net long EUR/USD contracts have risen to 125 K or 15.8 billion USD nL2N2EV1JF.
What is more worrying is the extreme overbought readings on the daily relative strength index (RSI).

Using a daily relative strength indicator (RSI) with a 21-day wider smoothing, it shows the EUR/USD is above 70, indicating the market is extremely overbought.
The last time the RSI on the daily EUR/USD was above 70 was on March 9 when the EUR/USD hit a high at 1.1495.
Over the next 10 trading days, the EUR/USD fell to a low at 1.0636.

The EUR/USD has benefited from solid gains in risk assets, that have broadly undermined sentiment in the USD.
Risks are now tilted to the downside with the global spike in coronavirus infections threatening the opening of economies and in some cases forcing them to shutdown again nL3N2EW02J.
The rise in diplomatic tensions between the U.S. and china also threaten the global recovery and pose a risk to equity markets and other risk assetsnL2N2EV1K5.

If equity markets correct lower, it will likely force EUR/USD longs to pare back.
A break below the ascending 10-day MA (1.1505 today) would signal that a correction lower is underway.
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Source:
Refinitiv IFR Research/Market Commentary

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