EUR/USD has risen on a big fall in energy prices, a hawkish ECB, and the view the zone will only have a mild recession the good news is now in and speculators are heavily long which points to a big break to the downside.

Energy Prices

Have fallen hard and the chart below shows EUR/USD inverted against natural gas – good news for the zone but this is not news anymore and is discounted.

Hawkish ECB

The chart below shows where the market sees the FED and ECB rates going – the USD holds a yield advantage now and going forward. Also, we think the market is underestimating how high the Fed will raise rates which we have outlined in recent articles.  

Risk on Risk Off

The USD tends to gain on the euro when traders become risk averse check out the chart below showing the correlation between EUR/USD and the SP500.

Russia Ukraine War

The mainstream media portray Ukraine as winning the war but this is not a reality Russia will probably launch a major offensive shortly after building up its forces in the last 3 months. This will result in another influx of refugees into the zone. Any escalation in the conflict will weigh on the euro.

Sentiment

In terms of large speculators, they have built up a big long position which we can see on the chart below.

On the chart below we can see large speculators' positions against commercials who are smart money hedgers – they only move their positions significantly when prices have moved to far from fair value and the divergence between them and large speculators warns of a break to the downside.

Technical Analysis 

Below are the key technical levels of support and resistance to look out for first chart from us and the second from The Market Ear.

Euro coming off a major long-term level of resistance as speculators have loaded up on longs.