The EURUSD pair has moved above the 1.1500 resistance level for the first time in three months after the market took the US CPI number hitting 7 seven percent as positive for risk.
Rather counterintuitively, the market sees the year-on-year CPI headline number hitting its highest reading since 1982 as a reason to be bearish towards the US dollar.
Yesterday’s move in the US dollar currency was particularly brutal for EURUSD shorts, who basically got annihilated after bulls broke above the 1.1390 level.
With the EURUSD pair now trading close to the 1.1450 mark, the big question is how high can the EURUSD pair go?. Personally, I think we are more likely than not to go to see the 1.1500 area tested.
UOB Bank is of a similar mind. The bank said “Our expected EURUSD range for Q1 is 1.1050 – 1.1600, and we continue to target 1.1150 for end-Q1. Levels above 1.1450 represent acceptable entry levels for fresh shorts from a risk-return perspective.”
Moreover, they expect the ECB to surprise. UOB note “Despite the insistence of key ECB representatives that policy rate hikes are a long way off, euro area rates markets are pricing in a 25bp rate hike over the next 12 months and at least one more thereafter. This is more remarkable for the fact that the ECB has committed to ending balance sheet expansion before a rate hike is possible”
In terms of sentiment, we are seeing bearish sentiment growing, despite the EURUSD pair posting a gain of close to 150 points on the week so.
The ActivTrader market sentiment tool current shows that 65 percent of traders are bullish towards the EURUSD. Typically, we look to fade retail sentiment skews.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair has finally staged a decisive move and broken above an extremely large ascending triangle pattern.
The overall size of the pattern indicates a move of around of 150 points once 1.1390 breaks, which would actually take the EURUSD pair close to the 1.1540 level. This could happen ahead of the expected FED hike.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame and the EURUSD pair has staged a number of technical breaks. The first break is from a wedge pattern, then a key trendline.
Finally, bulls are now testing above the Ichimoku cloud, making the 1.1440 level particularly important for further upside towards the 1.1500 to 1.1600 levels.