The dollar or its index DXY rallied by around 8% in the past few months after it lost 15% since the beginning of 2017. In post ‘Macro overview’ I wrote we might get this tradable counter trend rally and it feels to me it could be a good time to flip the card again. This time in the direction of the primary trend, which is becoming bearish for the dollar again.
I’ve been observing the sentiment in the past two months. When the price of EURUSD started falling in April, everyone was pointing to speculative positioning. So, back then there was no real change in the sentiment. But the more the price fell, the more was sentiment changing to negative. It got very extreme two weeks ago with Italian crisis when everyone was saying EU is risking to fall apart again. It didn’t change much since then as the Germans were keeping sceptics happy.
It feels to me that foreigners in particular are critical on the euro and EU. While I agree some things should be better and must be changed, not everything is so bad. It also feels that Europeans are more and more accepting it for their own. But the intention of this post is not to talk about politics, so I will let politicians, reporters and critics to do their job.
Going back to sentiment. Again, similar to the beginning of 2017, also now everyone thinks the dollar is going to rise. They might be right, and if they are, I will have no problems not only congratulating them, but also joining them on the trade.
But from short and as well long-term horizon I think we are due for a fall. From short-term perspective the price is stretched, there are also some divergences, and from long term we could be bouncing after a retest of the last year’s multi-year bottoming breakout in EURUSD.
The time will tell who’s right, at the moment I think these levels could be providing a great risk reward long opportunity in EURUSD.
I continue to believe EURUSD is offering a very good long entry here. Still in the camp who thinks that the recent USD rally is a counter trend rally.
— Domen Butala (@DomenButala) June 19, 2018
And let me conclude by showing you the chart below.