EUR/USD Rebounds in Quiet Markets, But Bearish Outlook Prevails

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The EUR/USD pair experienced a modest recovery on Monday, with the price currently hovering around the 1.1068 mark as I write this article. This upward movement comes after the pair reversed within our designated Demand Area, highlighted by the red rectangle on our charts. However, this recovery is happening against the backdrop of limited market activity, as both the United States and Canada observe Labor Day, leading to a quiet trading session until the next Asian market opening.

The US holiday means that the macroeconomic calendar will be relatively barren in the coming hours. However, the calm will be short-lived as the US is set to release several employment-related reports later this week, culminating in the highly anticipated Nonfarm Payrolls (NFP) report on Friday.

Despite the slight recovery seen today, our outlook for the EUR/USD remains bearish. The US Dollar Index (DXY) is also regaining strength, signaling potential downward pressure on the Euro. From a technical perspective, the price has recently touched a Supply Area, which has been confirmed as a significant resistance zone. What is particularly telling is the behavior of different market participants: retail traders are increasingly taking long positions on the Euro, while smart money—larger institutional traders—are reducing their long exposure. This divergence between retail and institutional sentiment is often a strong indicator of an impending reversal.

Moreover, this shift in sentiment is notable as it marks the highest point in 2024 where retail traders have gone long on the Euro. Such a scenario typically signals a potential short opportunity, as history often shows that retail traders tend to be on the wrong side of the market during such divergences.

In summary, while the EUR/USD pair has shown some strength today due to the subdued trading environment brought on by Labor Day, the overall picture remains bearish. The combination of a strengthening DXY, confirmed technical resistance, and a significant divergence between retail and institutional traders suggests that a short position on the Euro may be the more prudent strategy moving forward.

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