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The euro currency rallied sharply against the US dollar last Friday after finding strong technical support from the 1.1781 level, following the accounts of the European Central Bank meetings showed a more positive outlook for the eurozone.
EURUSD bulls will now need to overcome the 1.1900 level this week to get the recovery fully back on track, as this was last weeks major technical sticking point. Bulls may test towards the pair’s 200-day moving average, around 1.2050, if they can make traction above the 1.1900.
The accounts of the previous ECB meeting stated that the central bank “acknowledged that incoming information and data had been favourable, and bolstered confidence in the expected economic recovery”. This is the most bullish the ECB has sounded towards the eurozone economy this year.
Westpac, a leading Australian bank, has now put a target of 1.2300 for the EURUSD in the medium-term, however, I think the pair could head much higher, and could potentially test towards the 1.2700 mark due to a large head and shoulders pattern on the DXY chart.
In the near-term, the daily RSI is starting to rebound after it moved into extreme oversold territory last week. If we see the RSI pushing above 50 it could be a powerful buy signal for the EURUSD.
In terms of current sentiment, the ActivTrader market sentiment tool shows that bullish sentiment has increased considerably since last week. The increase is dramatic, with 80 percent of traders expecting further EURUSD gains. Expect more EURUSD weakness in the near-term if sentiment continues to rise.
EURUSD Short-Term Technical Analysis
The EURUSD pair looks to be forming a large, inverted head and shoulders pattern which will to take the EURUSD pair back towards the 1.1900 resistance level if it officially forms.
If we see the EURUSD pair making it back towards the 1.1970 resistance level, then a larger bullish reversal pattern will form that would imply that the recovery could reach the 1.2150 to 1.2200 area.
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EURUSD Medium-Term Technical Analysis
The daily time frame shows that the RSI indicator is recovering from extremely oversold conditions, it should be noted that no buy signal has been issued yet, and we need a move above 50 for this to happen.
Additionally, the EURUSD pair has formed bullish MACD price divergence on the daily time frame, which means that the MACD histogram has been rising while the price drops. The bullish divergence extends up to the 1.2150 level.
The EURUSD pair’s 200-day moving average is found around the 1.2050 level. If the EURUSD pair turns technically bullish again I would expect a test towards the current yearly high.
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