After plunging from 1.2349 to 0.9528 in a tightening cycle EUR/USD could rise toward 1.22 during the easing cycle that's expected to begin soon.
The pair has already recovered more than half of the losses seen during the 2021-23 tightening cycle, and has done so while speculators have been betting on a rise.
The current rise began at a very similar time to that which lifted the pair from 0.9528 in September 2022 to 1.1276 in July last year when the weight of longs and overbought conditions resulted in a sizeable correction.
That drop resulted in an oversold situation and a rally from last October's low at 1.0448 which reached 1.1139 in December from where a stretched rally has corrected again.
Roughly one quarter of bullish bets were unwound before EUR/USD fell from December's high to 1.0877 after the release of the December U.S. jobs report on Jan.
5, and a bigger reduction of longs likely contributed to the drop.
Less longs mean less restraint on a rally that has started from a much higher base than that seen between September 2022 and July 2023, and that one spanned 1748 points.
Like that rise, the next move up can occur regardless of a rate divide favouring the dollar.
Given the popularity and profitability of euro longs in the past 15 months bullish bets may grow to challenge the record $31 billion bet reached in 2020 with EUR/USD reaching 1.2196.
The 1.2196 mark is a Fibonacci target drawn off a September 2022 low at 0.9528, 2023's high at 1.1276 and the year's low at 1.0448.
If met, the coming rise is smaller than the last rise which happened during tightening and discouraged gambling unlike the coming easing cycle which should fuel it.
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