Extreme bullish sentiments in EUR/USD looks unsustainable in the short-term. The dollar bearishness has entered oversold territory, and the EU’s digital nationalism has the potential to put pressure on the Euro. The pair is trading around 1.1775, ahead of the London open.
According to the CFTC report, the net bearish positions, in the week ended July 28, in the greenback were at the highest level since April 2018, at $24.27 billion. It is also the highest US dollar net short for the last nine years.
Sentiment traders consider this a reliable contrarian indicator – when market positioning swings to such extremes. The reasoning is that investors are lined up in one direction.
Thus, EUR/USD is vulnerable to a pullback, a view strengthened by the overbought signals given by widely-tracked indicators like slow stochastic and relative strength index.
European Union’s digital protectionism might be a cause of friction with Washington and Beijing, adding pressure on the Euro. Almost all of the EU members consider taxes similar to the GAFA tax (Google, Amazon, Facebook, and Apple) enacted by France recently, according to Financial Times.
However, it is unreasonable to expect significant declines in the currency pair as the bearish theme in the US dollar which triggered the sharp run from 1.13 to 1.19 are still in play; only short-term sentiments are in question. Particularly, the US Congress is in limbo, on the method to extend the weekly boost to unemployment benefits.
EUR/USD hit a low of 1.1740 in Asian trading hours and is now trading near 1.1774, mostly unchanged from the previous close. Traders may consider the numbers from US ISM manufacturing data at 14:00 GMT along with the sentiment and technical indicators for the day’s trading.
