FxWirePro: EUR/USD declines amid stronger USD; retail sentiment points to bearish bias

The EUR/USD break out turns out to be fake out,

• We excitedly reported a breakout in EUR/USD last week as bulls cleared a key channel resistance. The break was significant as the EUR/USD recovered from its 2018 low and cleared a down trending channel resistance that has been in place since the beginning of the year. See chart for greater clarity.
• On Friday, as the break out happened, the EUR/USD retail sentiment flipped to net short on EUR/USD, giving the pair a bullish bias.
• However, yesterday’s price action has made it clear that the momentum is not with the breakout bulls and retail sentiment report also showed that Friday’s flip was only temporary.
• As the breakout turns out to be a false one, we are likely to witness sharp sell-off in EUR/USD, as the dollar recovers.
• The pair is likely to find support around 1.125 area, and a rally from there should provide fresh opportunity to enter short positions. A decline within the channel would see the pair decline towards 1.112 area.

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, points to bearish bias in the EUR/USD.
• IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in the opposite direction to market movements.
• As of today, according to data from IG markets, sentiment once again flipped to the bearish side after a temporary flip to bullish bias on Friday.  Today, the report suggests that 54 percent of the retail positions are on the buy side in EUR/USD, while 46 percent are bearish. That gives the pair a bearish bias.