The euro currency reversed sharply from the 1.1185 level last week as financial markets start to pay more attention to the signals coming from the bond market, and the new lockdowns in China.
Euro area inflation also hit another record high last week, with a big surge in March as energy prices are the main culprit of the record 7.5% year-on-year print.
The details inside the EU CPI report also showed that inflation in food prices, services and durable goods all moved above the 2% mark, suggesting that price growth is rather broad and not just exclusively due to higher fuel/oil prices from Russian.
This continues to leave the ECB in a dilemma with the worst likely yet to come, though the central bank is unlikely to act for now, which could hamper the upside in the EURUSD.
In theory, the EURUSD pair made a new higher high last week, meaning traders should probably buy the next dip. Trend traders may watch for the medium to long-term trend, with a move above the EURUSD pairs 200-day MA.
Failure to set a new high in April level and we may see a big sell-off coming back towards the 1.0800 level. But with the CPI news, more upside potential exists if the ECB acts on rates.
Sentiment is in favour of more downwards trading this week. The ActivTrader market sentiment tool shows that some 73 percent of traders are currently bullish towards the EURUSD pair.
However, I think that we probably need to see EURUSD traders turning wholesale negative before the EURUSD pair goes and fins a new short-term bullish trend.
EURUSD Short-Term Technical Analysis
The four-hour time frame continues to show that the EURUSD pair been rejected from the top of rising wedge type price pattern, following a short-lived bullish breakout.
According to the four-hour time frame, the price trend is still bearish while the price is capped under 1.1120 level in the short-term. However, the EURUSD pair is making new higher highs, which is encouraging technically.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame, the EURUSD pair has bounced above a key trendline, however, we are seeing a quick technical test of this important trendline.
I would also like to add that the EURUSD pairs 200-day moving average is another key upside target if the trendline holds. The 1.1000 level is the line-in-the sand for me this week.
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