EUR/USD has had a strong run since the beginning of the year, bouncing from near 1.0200 to just under 1.1800. But now, renewed USD strength has put doubts into the buyers mind.
Yesterday’s US–EU trade deal removed a major risk overhang (good news for global markets), but not surprisingly, the Euro sold off sharply, dropping below key support and psychological level at 1.1600, hinting at a reversal.
Trade Deal Details: Uncertainty Lingers
The US-EU framework agreement struck in Scotland set a 15% tariff on nearly all EU exports, less than the 50% initially threatened. This sparked relief… but not clarity.
Key sectors like steel and aluminum remain at a 50% tariff, contrary to EU expectations. Even more confusing: pharmaceuticals. Trump claimed they were excluded from tariffs, but US officials later said they’re included at the 15% baseline. This contradiction, along with unresolved issues in aerospace and energy, casts doubt over implementation and may create market volatility as final terms evolve.
For EUR/USD traders, this means any euro-positive sentiment from the deal could be fragile at best.
COT Data Flashes Warning
The latest Commitment of Traders (COT) report shows non-commercials (hedge funds) are the most bullish on the euro in over a year. This is important. When positioning reaches extremes, markets often reverse. Why? Because there are few buyers left to keep the move going.
Currency Strength Meter Adds Confluence
My currency strength meter also supports the downside in the EURO. Just a couple of weeks ago the currency was at +5 (very strong) and now it sits at +3 highlighting the weakness that has entered the market.
Technical Picture
Support to watch: Trendline support is being tested along with the recent daily swing lows of 1.1590. A break below this could signal further downside towards the support of 1.1450.
Resistance: 1.1800 remains the key resistance; a break above this level would be considered a fresh bull rally.
Bearish outside day: Yesterday’s price action could signal a short-term top forming.
The Euro’s momentum could be fading. With stretched positioning, bearish price action, and a resurgent dollar, the path of least resistance may be down.