The EURUSD pair has ignited back above the 1.1300 level due to risk-on market sentiment, largely driven by positive market sentiment towards the less deadly Omicron COVID-19 news.
Broad based US dollar weakness also contributed to the move higher on the EURUSD pair towards the 1.1350 mark, as inflationary and rate expectations in the USA remain at the forefront of traders’ minds ahead of Friday’s CPI release.
Another big factor that traders need to consider is the December FED meeting. It is possible we are seeing a EURUSD short squeeze ahead of next week’s huge FED meet.
The US central bank is widely tipped to accelerate tapering, and this could put a rocket under the US dollar index, meaning this latest rally in the EURUSD pair could turn out to be a selling opportunity.
One key technical level is worth watching ahead, and that is the 1.1380 level. A break above this key technical level exposes further gains towards the 1.1420 to 1.1450 area.
Failure to move above the 1.1380 level and the EURUSD pair could be sold aggressively lower, and the EURUSD pair could then form another large head and shoulders pattern.
Sentiment is not giving away many clues right now. The ActivTrader Market Sentiment tool shows that some 60 percent of traders are bullish towards the EURUSD.
This sentiment metric probably needs to get much higher in order for a big reversal to take place. Watch closely what the retail crowd are doing over the coming days ahead of the FED as it could be a great leading indicator.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair is at a very sensitive technical point and could be in the process of forming a large head and shoulders pattern.
A break above the 1.1380 area and upside risks will build significantly. A reversal from current level back towards the 1.1200 level is needed to confirm a head and shoulders pattern.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame a massive head and shoulders pattern has yet to reach its target. If the 1.1380 level is broken we could likely see a final test of neckline resistance this or next month.
If the EURUSD pair continues to hold above the 1.1300 level then a move to neckline resistance, around the 1.1540 area could happen this week. Any weakness towards the 1.1250 area could spark heavy losses.
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