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The EURUSD pair is back above the 1.1300 level as the US dollar index starts to sell-off due to risk-on trading sentiment and new record highs in a number of European stocks.
Recently, the EURUSD pair has shown signs of rebounding as sellers struggle to form a new low beneath the 1.1200 level, and the selling under the 1.1300 levels became weaker.
Very obviously the stronger fundamentals are on the side of the US dollar as the fundamentals of the United States economy are much better than Europe’s right now.
The main question therefore becomes how far the EURUSD pair can extend above the 1.1300 level. Technical analysis highlights that the euro is unlikely to extend beyond the 1.1600 level if this rally picks up steam.
In thin liquid holiday market the EURUSD pair can certainly pushed higher than most expect. The main short-term battle is now with the 200-period MA, around the 1.1330 region.
With the FED tightening QE, and the ECB ramping up purchases temporarily, clearly, we have central bank divergence, which is ultimately going to be detrimental to the single currency, so fading this rally is probably the correct play eventually.
Sentiment is also starting to rise, on the bear front which is a bad sign for sellers. Negative sentiment has increased since last week to 58 percent, despite the soggy eurozone fundamental. This is likely to signal more gains for the EURUSD in the short-term.
EURUSD Short-Term Technical Analysis
The four-hour time frame continues to show that the EURUSD pair is testing the top of a descending price channel, around the 1.1350 resistance level.
Additionally, watch the 200-period MA, around the 1.1330 area. Gains above both the channel and the 200-period MA pr a big rejection is likely to cause the next big directional price move.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame, we are currently seeing a decisive, and potentially a final test of Ichimoku cloud resistance around the 1.1350 level.
If the EURUSD pair continues to hold under the 1.1350 level then a test towards the top of the cloud could happen eventually, around the 1.1600 level.
Any weakness sustained under the 1.1250 level could spell heavy losses for the EURUSD pair towards the 1.1000 level according to the Ichimoku indicator.
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