Title: EUR/USD Longs Hold Firm as Friday Rally Eases Selling Pressure
Credit: By Adam Button, originally published on Investing.com
The euro enjoyed a reprieve against the U.S. dollar late last week, as a Friday rally helped to mitigate the risk of a widespread capitulation among EUR/USD long positions. While the pair had spent much of the week under pressure amid U.S. dollar strength and macroeconomic uncertainties, Friday’s bounce provided a measure of relief for euro bulls who had been bracing for a deeper breakdown.
This article examines the factors that contributed to this relief rally in the EUR/USD currency pair, the broader market context, and what traders might expect going forward.
Market Overview: EUR/USD Resilience Amid Weeklong Pressure
Throughout the past week, the euro had struggled to gain any meaningful traction against a dominant U.S. dollar. Mixed European economic data, persistent inflation in the U.S., and hawkish rhetoric from Federal Reserve officials combined to drive the dollar higher, leaving the euro vulnerable to further losses. By mid-week, EUR/USD was trending downward, with technical indicators suggesting a possible retest of key support levels.
However, Friday brought about a sudden change in sentiment across currency markets. Risk appetite improved, U.S. yields softened slightly, and technical support held, allowing EUR/USD to bounce back convincingly. Traders covering short positions and fresh buying interest helped the pair stabilize, sparing long positions from suffering broader damage.
Key Takeaways from the Friday Rally
The following points summarize the most important elements of the EUR/USD rally on Friday:
– EUR/USD climbed approximately 50 pips on Friday, closing the week just above the 1.0800 level.
– The rally offered a reprieve after a steady weekly decline that had seen the pair approach near-term support around 1.0725.
– Technical support around 1.0750–1.0725 held firm, which helped trigger short covering.
– The U.S. 10-year Treasury yield eased slightly after a strong week, offering some breathing room for risk assets including the euro.
– Federal Reserve officials made no fresh hawkish statements on Friday, reducing the pressure on risk markets and softening the dollar.
– The rally adds uncertainty for traders looking to gauge euro weakness, as it avoided a more serious long position washout.
Longs Escape Major Capitulation
Ahead of Friday’s recovery, market sentiment had turned increasingly bearish on the euro. Several large macro-focused funds were believed to be long EUR/USD, betting that the European Central Bank (ECB) would maintain a more hawkish tone in the coming months, particularly as inflation remains stubbornly high across the eurozone. However, rising U.S. yields and resilient American data made the dollar a more attractive option, pressing the euro lower and raising the risk of forced liquidations of long positions.
Key points regarding long positions:
– Many long-term EUR/USD traders entered positions in anticipation of ECB easing coming after or parallel to the Fed.
– Strength in U.S. data and sticky core inflation have pushed rate cut expectations for the Fed further, boosting the dollar and undermining the euro.
– Several key trading desks began reporting increased EUR/USD selling by macro funds on Wednesday and Thursday last week.
– By late Thursday, momentum traders and CTAs appeared to be accelerating the selloff, threatening a cascade of long position liquidations.
– Friday’s bounce, amid lighter volume and supportive technical conditions, helped prevent a broader capitulation among euro longs.
Technical Indicators: What the Charts Say
From a technical standpoint, EUR/USD has shown signs of maintaining its broader range despite midweek weakness. The key support area from 1.0725 to 1.0750 held up throughout multiple tests during the week, indicating firm buying interest at those levels.
Technical insights include:
– EUR/USD remains in a broad range between 1.0725 and 1.0920 over the past few weeks.
– Friday’s bounce sets the stage for
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