The euro has risen by half a cent today, reaching its highest level since Monday. This increase has nearly balanced its position for the week. Earlier, the US dollar was highly sought after as a safe-haven asset due to concerns about conflicts in the Middle East. However, it is now losing some of those gains, helping the euro.

Inverted Head And Shoulders Pattern

On the chart, the euro has formed an inverted head-and-shoulders pattern, which suggests it may retest recent highs around 1.1615. This movement has strengthened the euro compared to its position at the week’s start when risk sentiment weakened, causing safe assets like the dollar to gain favor. The inverted head-and-shoulders pattern shouldn’t be ignored because it often signals renewed strength. While it may not always follow the textbook example, our current scenario, along with the momentum building towards 1.1615, indicates that market participants are beginning to prepare for further gains. As the dollar lost some of its recent strength due to safe-haven demand, it wasn’t just because geopolitical fears have eased. The rates market has also played a role, with yields softening in some areas of the Treasury curve. This alleviates pressure on dollar-based assets, which struggled to attract investment without the strong yields seen earlier this week. If nothing new introduces uncertainty into the markets, this dollar pullback could provide room for the euro to stabilize, especially if risk appetite stays strong. Upcoming economic reports next week could shift sentiment again, but right now, technical indicators do not oppose euro strength.

Monitoring Market Positioning

We believe it is crucial to closely track market positioning. Open interest has increased near key resistance levels, often signaling that short-term traders are trying to capture breakout momentum. However, spreads have narrowed slightly, indicating some caution. This type of divergence can create a push-and-pull between traders confident in their positions and those hedging against sudden market shifts due to news. As traders, it’s wise to not only focus on key levels but also to closely monitor execution. Moves toward 1.1615 are likely to attract more activity. If that level starts acting more like a magnet than a ceiling, strategies favoring a continuous trend may perform better in the short term. We also note that speculative flows often thin out toward the weekend, leading to reduced market depth and sharp moves on low volume. This can accentuate what might seem like routine price adjustments. Stop placements are more crucial in these conditions, serving as strategic tools rather than blunt instruments. In summary, recent gains are not occurring in isolation. They follow earlier compression, and with price ranges widening once again, it’s important to act purposefully rather than react to noise. Create your live VT Markets account and start trading now.

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