The euro currency suffered its third-largest weekly decline of the year against the US dollar last week, as the greenback powered higher against most major currencies on the foreign exchange market.
This week a further breakdown is also possible, due to the extremely weak technical backdrop for the EURUSD pair, and a very high estimate of +600,000 for the upcoming Non-farm payrolls monthly job report.
Should we see the United States economy post an extremely strong jobs number this week then it could accelerate the ongoing bearish trend in the EURUSD pair and cause further upside in the US dollar index.
Last week the EURUSD pair closed the week under its 200-day moving average for the first-time since June last year, marking a big change on the technical front. Additionally, the RSI indicator also turned bearish on the daily and weekly time frames.
Futures traders have been drastically scaling down exposure to the EURUSD. The EURUSD long trade was at its highest last August with some 212,000 futures longs. This trade is now at only 93,000 according to the latest date, which is also dramatically down from the start of the year, where futures traders were long 165,000 EURUSD contracts.
Getting back the fundamentals, it is likely that the US economy is going to return to health much-faster than Europe, hence the fundamentals and the technical are really starting to align for EURUSD bears now.
Something else which is also aligning with the technical and fundamentals is sentiment. The ActivTrader market sentiment tool is highlighting that 75 percent of traders are bullish towards the EURUSD, despite the major decline last week.
In terms of sentiment, this is irrationally bullish, and would probably indicate that the bearish down move has more room to run. Watch out for further losses in the EURUSD pair while this sentiment extreme remains in play.
EURUSD Short-Term Technical Analysis
According to the four-hour time frame a major breakout from a falling price channel has occurred. This is significant, due to the fact the falling price channels are typically considered to be bullish reversal patterns.
Traders should keep a close watch on the channel breakout this week, around the 1.1840 level, as it is hinting that the EURUSD pair could be about to drop by 300 points.
It is also noteworthy that short-term technical indicators are heavily negative, and an important range break took place last week after the EURUSD moved under the 1.1835 level.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, the EURUSD pair has closed the week below its key 200-day moving average, at 1.1850 for the first time since June last year.
If we see weakness persists this week then the 1.1600 support level is the next major bearish target for the EURUSD. The pair’s 200-week moving average is another huge downside target I am watching, around the 1.1550 level.
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