Currency markets saw some sharp moves on Wednesday as FX traders responded to a plethora of economic releases and statements by selling the US dollar and buying the Euro, Japanese yen and British pound. This has seen EURUSD enter an overbought condition that could lead to some short term downward pressure for the pair.
Traders would have anticipated the monthly Federal Reserve policy meeting to be the main item on the agenda on Wednesday, but in the end, Fed officials kept in line with expectations and were ultimately upstaged by a lacklustre GDP print.
US GDP came in at just 0.1% versus the 1.2% expected and was a real disappointment. This saw EURUSD rally around 80 pips on the day to close around 1.3870. Meanwhile, GBPUSD hit a four and a half year high, soaring by around 70 pips, and USDJPY dropped through all three support levels to 102.2.
Overbought condition for EURUSD
Looking at the chart, EURUSD appears to be entering an overbought condition here and this is confirmed by both the CCI (commodity channel index) and Williams percent range indicators, on the daily chart. For now though, RSI and Bollinger Bands are still not yet showing the market as overbought, though they are on shorter timeframes.
More importantly, however, an analysis of open position data reveals that the market is now in a significantly one-sided position.
Open position data from large forex broker Oanda (below) shows that only 23.15% of current open positions are long positions and this makes EURUSD the most one-sided market of all the major forex pairs. Significant one-sided ratios, those below 25% often indicate that a reversal is around the corner because the market has become imbalanced. The only way to address that balance is if the market corrects, so short term traders should turn bearish on EURUSD for the next week or so.