The EURUSD pair is looking increasingly bearish on the foreign exchange market as it returns to the former monthly breakout spot, the 1.1680 level, which accelerated its sharp September decline and then declined.
If bulls can take out this key technical zone then I fully expect the 1.1715 and 1.1760 levels to be tested this week. However, it may not be a smooth ride as the ECB policy meeting could throw in some surprises, and the US dollar index is doing its best to stop the rally in the single currency.
Rising concern about inflation from the ECB could cause the rally in the EURUSD pair to pair, and of course the opposite is also true. Any hawkish policy language towards rate hikes could turbo charge the EURUSD.
This week’s EU and German inflation releases should be very important, and especially if we see the kind of high levels of inflation in the eurozone that the UK and the US are seeing.
We should also consider that the US dollar index is in make-or-break territory, with the buck ready to break down much lower, or recover back towards the 94.00 area and possibly the monthly high.
Something that is slightly worrying is the relatively high levels of bullish sentiment towards the EURUSD. The pair is moving higher with a clear bullish sentiment bias.
The ActivTrader Market Sentiment tool shows that some 62 percent of traders are bullish towards the EURUSD. This is not a massive bullish sentiment reading, but it is worth watching as bearish sentiment is ideal for a sharp price rise.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair continues to trade above and below the neckline of an extremely large, inverted head and shoulders pattern, which once fully activated propel the EURUSD pair towards the 1.1760 area.
Upside failure hear could sink the EURUSD pair back towards the 1.1570 level, however, it seems unlikely given the positive risk-on sentiment and energy surrounding the US dollar sell-off, which is broad based.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame things still look good for the EURUSD pair as the Ichimoku indicator shows that the price has moved above the Tenkan Sen line and the Kijun sen line.
If the EURUSD pair can perform a series of daily price closes above the Tenkan Sen line and the Kijun sen line, around the 1.1630 to area, then expect a test of cloud resistance at 1.1760.
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