The euro nearly fell to a new 2022 trading low last week, after the US ISM missed the street’s forecasts, causing fears about a coming recession, which provokes a counter-cyclical move into the US dollar currency.
Traders swept aside their belief that the ECB will hike rates, which has recently been keeping the single currency in a range between the 1.0500 to 1.6000 levels against the greenback.
In this type of risk-off environment, it is going to be very hard for riskier asset classes to rally. Essentially, the euro currency can be a risk proxy and does benefit when markets are in a more positive mood.
I think that the EURUSD pair is also being dominated by the demand for the US dollar now. The DXY is close to breaking to new 2022 highs, which is really no coincidence as the EURUSD sits near 2022 lows.
Going forward, I would suggest keeping a close watch on the correlation between the 106.00 level in the DXY and also the 1.0350 support level. A break of both the mentioned resistance and support zone could accelerate both the prevailing price trends in both the DXY and the EURUSD.
Something that is good for the downtrend right now is that traders are very bullish towards the EURUSD pair. The sentiment is rising while the EURUSD pair looks lower.
The ActivTrader Market Sentiment tool shows that just 67 percent of traders are bullish towards the EURUSD. This is suggesting more heavy losses this week and into June.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair has been trading in a range and has formed both a large head and shoulders pattern, and a double-bottom patter.
The large head and shoulders pattern has not yet triggered, and this will be activated if the price moves under 1.0350. Watch out for a further crash below parity in the EURUSD pair if we see a move below 1.0350.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame things are evenly balanced for the EURUSD pair, as it has recently tested and bounced from the bottom of a falling wedge pattern, close to the 1.0350 level.
If the EURUSD pair continues to hold above the wedge, and moves above the 1.0600 area this week, then watch for an attack towards the 1.080. Failure under the wedge and we are more likely than not towards and under parity.