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The euro currency is set for a turbulent week against the US dollar last week, as the Federal Reserve bank meet to decide on interest rates and the German economy releases a raft of economic data points.
Starting with the Federal Reserve policy meeting, the chances of a 100-basis point rate hike is very low after the recent soft housing and service PMI data from the United States economy.
Breaking down the scenarios, the EURUSD pair is likely to rise if the FED talk up the risks to the US economy from rising rates too fast. On the flip side the EURUSD pair could tank if the FED comment that they need to keep their foot on the pedal with aggressive rates.
The problem the EURUSD pair also faces now is bad data from Germany. The powerhouse economy of Europe is starting to show cracks amidst an upcoming energy crisis.
This week we see the German economy release IFO, CPI, and GDP data. This leaves plenty of scope for the EURUSD pair to fall. Especially if we the IFO data showing growing negativity towards the German economy.
Something that could be a marginal positive right now is the bullish sentiment towards the EURUSD. Sentiment has changed recently, and this has no doubt help to aid the recovery in the single currency.
The ActivTrader Market Sentiment tool shows that some 56 percent of traders are bullish towards the EURUSD. This is the same as last week and could suggest more price gains or stabilization.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair has formed a large inverted bearish head and shoulders pattern has formed, which strongly suggests more upside.
According to the potential upside target, as measured by the size of the head and shoulders pattern, we could reasonably expect to see the EURUSD pair testing towards the 1.0600 level.
I feel that the 1.0350 level presents a much more realistic price target this week. This is also the location of the EURUSD pairs 200-period moving average.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame a large head and shoulders pattern has been activated now after the price moved under 1.0600. This is the pattern to watch over the medium-term horizon.
Watch out for a further crash below parity, and possible the 0.9000 support level if we continue to see the EURUSD pair trading below 1.0600 level.
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