The EURUSD pair rallying against the US dollar as market sentiment turns bearish towards the greenback amidst signs that inflation may be peaking in the United States.
On Thursday the US dollar started to fall after the CPI report slumped, and the midterm elections showed that the Republicans were going to come out on top.
Rate watchers would know that this would imply less further hikes from the FED as we are likely to see 50 or 25 basis points hikes at the next two policy meetings.
With this in mind, the EURUSD is looking even more technical strength and I would expect that the pair is headed towards the 1.0500 level and the US dollar index may have topped.
Bullish patterns are engulfing the lower timeframes, and I believe that more upside is coming. I suspect the scene has been set for a new price trend.
The ActivTrader Sentiment tool suggests that 40% of traders are bullish on the EURUSD. This is still very positive for bulls if we consider that traders are still bearish despite the rally this week.
As traders, we typically look to fade retail sentiment when it is overly skewed in one direction. This style of trading, fading sentiment, has been one of the most effective and used tactics of hedge funds.
The EURUSD is currently showing a large, inverted head and shoulders pattern. The size of the pattern would indicate that a short-term bottom could be nearing around the 1.0500 area.
This is a bullish chart for the EURUSD over the short-term. This pattern is actually projecting a move of around 1,000 points.
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According to the daily time frame, the pair is trapped in a large falling price channel and has projection for the EURUSD around the 1.0700 level also at the top of the channel.
As long as the EURUSD pair stays above the 1.000 price level then medium-term analysis shows that further strength towards 1.0700 is possible.
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