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The EURUSD pair is back towards the 1.0400 level as the US dollar index starts to fall again after coming under early week selling against a number of top currencies.
Traders sold the EURUSD pair after it was unable to find meaningful buying interest above the 1.0500 level and take out key neckline resistance from a bullish reversal pattern.
Additionally, other euro crosses have been experiencing solid buying, such as the EURCHF and EURGBP, adding further upside pressure on the single currency.
The technical show that an inverted head and shoulders pattern is forming, and the recent upside failure at the top of the pattern certainly hints that a final right-hand shoulder is building.
In terms of bullish targets, the 1.0600 level appears to be the first major target, although the size of the mentioned triangle is projecting much greater gains if a genuine breakout happens.
The fundamental backdrop is currently not supportive for further EURUSD gains as well. This is to say that the interest rate and policy divergence between the FED and the ECB remains.
Bullish sentiment is also starting to drop, as traders start to become frustrated with the lack of upside breakthrough over recent days.
Negative sentiment has dropped since last week to 55 percent, from a high of 60 percent last week. This neutralizing of sentiment bias is likely to signal more range bound trading 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 falling after testing the top of the large, inverted head and shoulders pattern, around the 1.0500 resistance level.
Additionally, watch the neckline around the 1.0500 level as the next big directional price move towards the top of the pattern, which holds a 300 upside target.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame, we are currently seeing that the EURUSD pair is gradually heading back towards critical resistance around the 1.0600 level.
The EURUSD is also trading in a large falling price channel on the daily time frame. However all eyes remain on the top of the channel, around the 1.0600 level.
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