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FxWirePro: EUR/USD likely to test channel floor at 1.112 area as ceiling break fails

Despite today’s bounce back, the single currency is likely to face further slide,

  • As the bulls failed to clear channel resistance around 1.139 area and faced sharp sell-off on Friday, it is likely that the single currency would decline further against the USD.
  • The chart clearly shows that the bulls managed to clear the resistance on Wednesday and reached 1.145 area (EUR/USD) riding on FOMC. But the break was only temporary, as the single currency came under heavy selling pressure, as weaker economic numbers from Eurozone, countered the dovish FOMC announcement.
  • According to flash reports released Friday, Eurozone PMI set to tumble to lowest in five years.
  • Upcoming speech by ECB President Mario Draghi on Wednesday could add to selling pressure on euro, as the central bank chief is expected to deliver dovish remarks.

Retail sentiment:

  • The sentiment reports from IG Markets, which is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting, suggest that the euro is set to decline further.
  • IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in opposite direction to market movements.
  • As of today, retail positions remain skewed to the upside; 52 percent of retail positions are on the long side, while only 48 percent are short on euro, suggesting further slide.

We expect the euro to slide below 1.1 area in the short to medium term.

                                                                                                              

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