EUR, EUR/USD, Ukraine, Implied Volatility, IGCS – Technical Outlook

  • Euro starts the week weaker, remains in familiar territory against the dollar
  • Bearish rectangle K-line chart formation continues to mature, watch out for breakouts
  • EUR/USD one-week implied volatility rises as retail investors go long

Euro Technical Analysis

The EURUSD continues to trade in a familiar range despite the market volatility exacerbated by the Russian attack on Ukraine. In fact, EUR/USD may be forming a bearish rectangle K-chart. The boundary of the rectangle seems to be between 1.107 and 1.1495. A break to the downside could open the door to a resumption of the downtrend that preceded the formation of the K-chart.

The lower boundary of the rectangle is also likely to continue to act as key support, extending the consolidation in the euro. This is because the 100-day simple moving average (SMA) continues to remain downward sloping, providing a resistance point that could restore the single currency's primary downside focus.

A break to the downside would expose 61.8% and 78.6% Fibonacci extensions at 1.1048 and 1.10927, respectively. Beyond that, it lies at the lows from April 2020, forming a support range between 1.0727 and 1.0793. This could make the technical outlook increasingly bullish if it breaks above the rectangle. Such a result exposes the 1.1664 – 1.1692 inflection zone, before the August high becomes resistance.

Given the ongoing events in Ukraine, traders should take a key breakout in the euro with a grain of salt. Over the weekend, the euro jumped sharply lower before recovering lost ground by the end of Monday's trading session. According to Bloomberg, the one-week implied volatility of EURUSD was 10.025, the highest level since November 2020. Traders should take this into account as the situation matures.

EUR/USD Daily Chart

K-line charts created in TradingView

Euro Sentiment Outlook – Bearish

Looking at the IG client sentiment data, about 62% of retail traders are net long EUR/USD. IGCS tends to act as a reverse indicator. As most of the crowd favors the upside, this suggests further downside potential. This is because the upside risk has increased by 24.23% and 8.95% compared to yesterday and last week, respectively. Thus, the combination of current and recent changes in sentiment produces a stronger inverse trading bias.

Euro remains at risk due to spike in EUR/USD implied volatility and retail traders going long

* IGCS K-line chart and positioning data used since February 28th Rpoert

– By Daniel Dubrovsky, Strategist, DailyFX.com

To contact Daniel, please use the review section below or @ddubrovskyFX On Twitter

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