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March 16, 2021

EUR/USD Deep Dive: Will The Bull Run Be Over?

Bart Kurek

Looking long-term at the Fiber, it has been pretty one-directional as price steadily moving in an uptrend forming new highs since the initial Covid-19 outbreak in March 2020. Currently we have got our eyes pealed at the three horizontal levels shown above which are 1.18, 1.192 and 1.21.

1.192 is the most important level to watch at the moment, as you can see it has acted as resistance for several weeks until price closed above and created a new high. 1.80 is the level of previous support before the breakout and 1.21 is the level where price has been consolidating at within the descending channel.

Looking at price action on the daily chart, we're focusing on this short-term descending channel (also a bullish flag chart pattern) where price has recently touched the channel's bottom and we're most probably looking for positions to go long on this pair.

Notice how price pushed further outside the channel before reversing, this is a technique banks use to raid stop losses and collect liquidity. They pushed 50% between the two horizontal levels which is the first area of likely reversal. Price could also reach 80-90% but this time, it was only 50%.

Going forward, I would like to see price retest a bit further below the 1.192 level at around 1.188 before going long. This is because as this 1.192 level is standing out to everyone, banks will likely use this to manipulate price to take out just a few more areas of liquidity, before the potential major rise to the upside.

Technicals are pointing to a bullish move however on the other hand, fundamentals are pointing towards a bearish Fiber.

Euro's total long position in the futures and options market fell by 3.873 billion last week, which is worsened by the growth of the yield spread in favor of the US dollar. The yield of the 10-year US Treasury showed a sharp growth from 1.05% to 1.650% for 7 weeks, while German bonds are still in the negative zone. As a result, euro's target price is moving further below, which means that there are fundamental reasons for a deep decline.

On top of this, we have sources to confirm that investment banks such as Credit Suisse and MUFG are both short on EURUSD and are targeting 1.17-1.185

Their rationale for these trades is "The failure to advance above the 1.2000 level and the lurch lower today on higher UST yields in the US we think signals scope for a further move to the downside for EUR/USD. We look set to break new highs on the 10-year yield and this will continue to weigh mostly on the low-yielding G10 currencies like JPY, EUR, CHF and SEK.".

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