The euro currency staged a huge bearish reversal against the US dollar last week after the pair staged a false upside breakout above the 1.2200 resistance level. Downside momentum is now building in the EURUSD, following a technical breakout and potentially game-changing move into the US dollar index.
Another side of the equation is risk-off sentiment. The previous correlation between rising US bond yields and a flight back into the buck has proved troublesome for the EURUSD pair. At the start of last week, positive sentiment towards the expected recovery in the global economy caused traders to buy riskier currencies, such as the Aussie and sterling.
This brings up back to the EURUSD. In order for the reversal in the pair to continue US dollar strength is required. Better US economic data could be the straw that breaks the camel’s back and sends to the EURUSD pair below the 1.2000 handle.
Looking at the US dollar index, a move above the 91.50 level is required to force a long-lasting breakout in the greenback. The mentioned breakout would almost certainly have wider implications for the EURUSD.
Watch out for more of the same this week if US bond yields continue to rise, and US economic data, such as the ISM manufacturing report and the Non-farm payrolls job report outperform.
Looking at retail sentiment there is no large one-way skew towards the EURUSD pair right now. This would imply that traders are uncertain. This is certainly justified, given that the pair has been lacking in a one-way trend, and has generally reversed in the opposite direction whenever it looks to be breaking out.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the recent move above the 1.2200 level appears to have completed the final right-hand shoulder of an extremely large head and shoulders pattern.
Watch out for more weakness in the EURUSD pair this week if bears break the neckline of the pattern, at 1.2060, and then takes out the recent multi-month swing-low, at 1.2030. A break under the area exposes further weakness towards the 1.1960 and 1.1860 levels.
Traders may look to sell any rallies back towards the 1.2130 to 1.2150 level this week if bulls gain traction above the 1.2110 level.
Source By ActivTrader.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, it currently shows that the EURUSD pair is testing towards a key trendline, following Friday’s move under the 1.2100 level. Weakness under this key trendline could spark a strong price drop.
Additionally, the Parabolic SAR indicator on the weekly time frame will turn bearish for the first-time since November last year if bears close the weekly candle under the 1.1960 level this week. It could be an important week ahead for the EURUSD.
Source By ActivTrader.
