EUR/USD Gains Momentum as Non-Speculative Flows Drive Rally
EUR/USD has steadily climbed from 1.0125 on February 3 to a high of 1.0514 last week, with price action suggesting a non-speculative rally. The fact that net short positions remained largely unchanged—only decreasing slightly from $8.6 billion to $8.3 billion—indicates that fundamental demand, rather than speculative positioning, is driving this move. Non-speculative flows tend to have a more lasting market impact, reinforcing the potential for sustained upside. Additionally, with short positions still substantial, the potential for short covering remains a key upside catalyst. Once these positions begin to unwind, EUR/USD could see further support, potentially pushing the pair toward the 1.06 handle.
From a technical perspective, EUR/USD’s recent price action confirms bullish momentum. The pair is now trading above key moving averages, suggesting further upside potential if resistance at 1.0550 is breached. The next major upside target is the 1.0600 level, with additional resistance at 1.0650. Support is located at 1.0450 and 1.0380, with a deeper retracement possibly finding bids near 1.0300. Forward-looking FX options pricing reflects diminishing volatility risk premiums, further reinforcing the view that the current market environment favors a continuation of the uptrend. The reduction in USD call option premiums relative to puts suggests that traders are not aggressively positioning for a dollar rebound, keeping EUR/USD supported.
The macroeconomic environment continues to lean in favor of euro strength. Weaker U.S. retail sales data and signs of softer PCE inflation reinforce expectations that the Fed could take a more dovish stance. At the same time, easing geopolitical concerns, including possible progress toward a ceasefire in Ukraine, have improved broader risk sentiment, weighing on the USD. Market participants are also reassessing the impact of U.S. trade tariffs, which are now perceived as a negotiating tool rather than a material economic threat. As long as EUR/USD holds above key support levels, the bias remains bullish, with potential for a push toward the 1.06-1.07 range in the coming sessions.