The Most Crowded EUR Trade Could Be Setting Up for a Collapse

The EURAUD pair has recently come on to my radar from both a currency strength meter and sentiment point of view. Despite the forex pair being in a strong upward trend, there is signs of a potential reversal on the horizon. With sentiment stretched on both sides of the pair and price action forming a slow consolidation, EURAUD could be on the cusp of a reversal.

The Commitment of Traders (CoT) reports highlight an imbalance in the large speculator positioning.

As stated in my post yesterday, EUR net long positions are approaching a previous extreme which was last formed in September of last year. Historically, such extremes can lead to reversals, whether it be from profit taking or a change in the narrative.

On the other hand, AUD large speculators are extreme short, this can often lead to a reversal higher. AUD has been sold off for a while due to the poor growth in China, but this could change.

This means we could begin to see some EUR weakness and AUD strength leading to some EURAUD downside.

Looking at the currency strength meter we can see that the EUR is now the strongest currency out of the G7. EUR sits at +5 on the meter which means the currency is strong or a reversal could form.

When we look at the AUD it sits at +1 currently and in more of a neutral area. If this were to climb to +3 then the AUD would be seen to be getting stronger.

The price of EURAUD has been in a strong upward trend since the beginning of this year until it found resistance at the highs of 1.8500 at the start of April. Recently the price has been crawling to the upside working within a minor channel formed from the lows on the 14^th May around 1.7200. If this channel were to break lower, it could signal a reversal in the upward trend.

EURAUD may be nearing a bearish reversal as several key factors align. CoT data shows extreme net-long positioning on the euro and extreme net-short exposure on the Australian dollar, these are conditions that often precede shifts in market direction. The euro is currently the strongest G7 currency, which could signal a near-term peak, while the AUD shows room to strengthen. Technically, the pair has stalled below 1.8500 and is moving within a narrow ascending channel from the May lows; a break below this structure could confirm a trend reversal, especially if macro sentiment toward Australia and China begins to improve.