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Summary
- EUR/USD is up ~6% so far year-to-date (YTD).
- The pair hovers about one percentage point off its YTD high seen yesterday, having gained about 1.5% this week ahead of the US jobs report and Powell’s speech later today.
- Technicals show EUR/USD as overbought in the near-term, coinciding with CTAs ramping up EUR/USD long positioning.
Market Implications
- EUR/USD is due a further pullback, with elevated RSI readings set to unwind further from their overbought levels. Near-term, the 2024 highs ahead of 1.12 appear as formidable resistance.
EUR/USD Flying High Into Q2
After a strong rally in Q1 2025, EUR/USD has continued rising in Q2’s first week, with the pair trading ~6% higher YTD.
The rally has accelerated this week, although retreating slightly today, with the pair up about 1.5% ahead of the USD jobs report and Powell’s speech later today (Chart 1).
But Beware Overbought Short-Term Technicals
This impressive rally is durable, and can continue into Q2, but short-term technicals indicate EUR/USD is due a pullback before rising higher.
The pair’s RSI is now above 70, the threshold that defines EUR/USD as overbought (Chart 2).
CTAs Sound Warning Bell After Ramping-Up EUR/USD Longs
Meanwhile, momentum models have ramped-up long EUR/USD positioning over the past week (Chart 3).
This strikes us a classic case of CTA positioning now becoming crowded at sub-optimal levels and taken together with overbought technicals, makes us think a near-term downside correction is in the offing.
2024 Highs Near 1.12 Will Provide Stern Resistance
Over the past year, EUR/USD is approaching the 2024 highs of August and September just ahead of 1.12 (Chart 4).
This will prove a durable resistance zone. Therefore, we think EUR/USD will cheapen slightly before it resumes its uptrend.
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