EUR/USD extended losses in holiday-thinned trading on Tuesday and pierced below the 200-day moving average during the North American and European overlap. Volatility has increased over the past two weeks and is expected to remain high, with several market-moving data releases scheduled this week.

The 200-day moving average in EUR/USD confluences with the 1.20 handle, which is considered to be a big psychological price point for the currency pair. It is common for an overshoot of support, and in this context, the daily close will be important in assessing if a technical break has materialized. Today’s test of the indicator is the first time in about a year.

Broad-based gains in the dollar as of late have been attributed to rising bond yields and encouraging data from the United States. Also playing a big role is the unwinding of a large bearish dollar bet in the markets.

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The latest Commitment of Traders report revealed euro bulls scaling back on bullish bets by about 16% on a week-over-week basis. The significant positioning shift almost entirely reflects a covering of longs, as the short position remained relatively unchanged. Nevertheless, the euro net long remains at extreme levels, especially when compared with its major counterparts. The net long is still about three and a half times the size of the British pound net long, which is the second largest among the major currencies.

The greenback has gained about 3% over the past three weeks against a basket of currencies. The trade-weighted index (DXY) has diverged from its inverse correlation with EUR/USD somewhat as it has pushed firmly above its 200-day moving average. As a result of recent dollar gains, the Australian dollar, New Zealand dollar and Swiss franc trade at fresh yearly lows against the greenback.

DXY posted a bearish doji on Friday after testing the 200-day moving average following the release of U.S. GDP data. Stops triggered from…