The USD's strength looks to be building, this could have a big impact on the major currencies including EUR/USD, which looks to be pulling back to major support levels. Sentiment indicators like the commitment of trader reports highlight heavy long positioning by the non commercials.
USD In Demand
USD bears have been slowly fading over the past couple of weeks, with the USD Index climbing from 96.70’s back towards the 98.50’s.
The USD CPI report today showed a slight cooling of inflation but headline came in above previous and expectations of 2.7%, whilst core came in at 2.9%.
To me this seems like the inflation is sticky, and the Fed may have to be a bit more cautious when it comes to their policy outlook.
Trump on the other hand saw this as an opportunity to call for the Federal Reserve to cut interest rates. On Truth Social the President wrote “Consumer Prices LOW. Bring down the Fed Rate, NOW!!!”.
The CME Fed Watch Tool shows the chances of a rate cut in September fading substantially.
Overcrowded Positioning
The Commitment of Trader (CoT) report shows that the non-commercial traders are the most bullish they have been on EUR futures in 52 weeks.
When looking at the chart of EUR futures (EUR/USD) and the positioning, I can see that the last time the contracts were this high was back in January 2024.
I always take positioning into consideration especially when they look stretched. It can often signal a reversal is going to form at some point. This helps me with account management or trading opportunities.
The only problem we have is, we have no idea how deep the turn around could be or if the overall weekly trend would continue. But that’s trading for you!
Technical Picture
Taking a look at the EUR/USD chart we can see that the price is in a strong upward trend on the weekly chart.
Although the price has found resistance towards the 1.1800 level, and the price seems to be heading lower.
If this continues in line with the USD strength and EUR positioning, then we may see the price trade back towards the 1.1500 - 1.1450 level of support. A break of this level would highlight the market sentiment shifting for a longer period of time.
The Takeaway
The euro’s bullish run may be out of steam:
The USD is stronger as inflation remains sticky.
Positioning is stretched, making the euro vulnerable to a sharp flush lower.
Good luck out there traders!