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The euro currency fell sharply towards the 1.0800 support level against the US dollar last week as market after the European Central Bank’s latest policy stance did not match market expectations on the pace of stimulus withdrawal.
The ECB opted to leave interest rates unchanged as expected after its latest policy meeting. However, President Christine Lagarde noted that “downside risks to the growth outlook have increased substantially as a result of the war in Ukraine”.
Lagarde not that inflation will remain high over the coming months, mainly because of rising energy costs. This also sounded like an admission of stagflation.
The euro to a two-year low of 1.0770. Setting the EURUSD pair up for more losses this week. The main point of contention for me is a multi-year trendline and sentiment.
The higher time frame technicals are extremely bearish this week below a major trendline around 1.0820. Additionally, sentiment is flagging more losses ahead this week.
Sentiment is in favour of more downwards trading this week. The ActivTrader market sentiment tool shows that some 75 percent of traders are currently bullish towards the EURUSD pair.
A 75 percent bias is very worrying and warning of more big losses. It is astounding that retail remain bullish while the trend is so clearly bearish here.
EURUSD Short-Term Technical Analysis
The four-hour time frame continues to show the EURUSD pair struggling after broking under a massive broadening expanding triangle pattern, after being rejected from the 1.1180 area.
According to the four-hour time frame, and the overall size of the mentioned price pattern, the EURUSD pair looks to have met its overall downside target.
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EURUSD Medium-Term Technical Analysis
Looking at the monthly time frame, the EURUSD pair is consolidating around a key multi-year trendline, however, we are not seeing a big reversal from this important trendline yet.
The 1.0820 level is the line-in-the sand for me this week. A sustained move under this level and we could soon be looking at parity for the EURUSD pair this quarter, or a huge bounce back towards the 1.1500 if bears can’t execute.
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