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Euro Continues Downward Against US Dollar Despite Limited Downside

Euro Downward Against US Dollar

Euro faces downward pressure against the US Dollar, with limited downside expected; US Dollar Index, economic data, and sentiment analyzed.

Currency markets are seeing the Euro (EUR) facing continued pressure against the US Dollar, with the trend remaining intact as the new year unfolds. The EUR/USD forecast indicates a push higher for the US dollar in early 2024, anticipating a limited downside for the EUR/USD pair.

The recent bounce in US Treasury yields from multi-month lows is a modest boost to the US dollar as the new trading year begins. However, market analysts continue to exercise caution, suggesting that year-end position squaring and low-volume trade conditions may contribute to the upward movement in US Treasury yields rather than indicating a convincing trend reversal. The US Dollar Index chart (DXY) maintains a negative stance, with the mid-December bearish pennant pattern and downward-sloping simple moving averages contributing to a bearish, longer-term outlook.

Euro Continues Downward Against US Dollar Despite Limited Downside

Today’s economic calendar is relatively quiet, with only a handful of final Purchasing Managers’ Index (PMI) readings to monitor. Various US labor releases, culminating in the eagerly awaited US Non-Farm Payroll (NFP) report scheduled for release on Friday, are expected to emerge as the main market drivers for the week.

EUR/USD reached a multi-month high of 1.1139 at the close of December but has since experienced a decline. The 1.1076 to 1.1096 zone now expects to resist, challenging the achievement of a convincing upward breakthrough ahead of the US NFP release. However, a positive outlook persists as the 50-day simple moving average (SMA) intersects with the 200-day SMA.

According to IG retail trader data, 36.30% of traders are currently net-long, with the short-to-long ratio at 1.76 to 1. The number of traders net-long has increased by 3.99% since yesterday and is 0.69% higher than last week. Meanwhile, the number of traders net-short has risen by 1.53% since yesterday but is 4.59% lower than last week.

Regarding sentiment, 61% of clients are net short on EUR/USD, with daily changes showing a 12% increase in long positions, a 3% increase in short positions, and a 7% change in open interest. Weekly data indicates a 1% increase in long positions, a 5% decrease in short positions, and a 3% decline in open interest.

We advise market participants to closely monitor developments as the currency pair navigates through these dynamics, closely monitoring key resistance levels and upcoming economic data releases.

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