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The EURUSD pair crashed towards the 1.2100 support level last Friday as traders moved back into the greenback amidst renewed risk-off market sentiment, due to the uncertainty surrounding the upcoming FOMC interest rate decision and economic projections this week.
Last week’s extremely strong June CPI report from the United States could have alerted traders to the fact that the US Federal Reserve may appear more bullish towards rates and a coming QE taper.
Should we see the Federal Reserve talking up the prospect of a tapering QE, then it could lead to further US dollar strength. The main problem I have with this is that US jobs data remains mixed, which is something that is likely to make the central bank reluctant to change fiscal policy.
From a technical perspective the EURUSD pair is in trouble below while it trades below the 1.2100 support area. The EURUSD pair is making lower lows and lower highs on the lower and higher time frames.
It is therefore likely that US dollar strength could spill over this week, placing the 1.2000 level as a likely technical barometer. The 1.2000 level is a big deal for traders from a psychological perspective.
Looking at sentiment, the ActivTrader market sentiment tool shows that 48 percent of traders are bearish towards the EURUSD right now. Bearish sentiment has increased by around 4 percent since last week. Generally, traders appear very uncertain about the direction of the EURUSD.
EURUSD Short-Term Technical Analysis
The EURUSD pair is under tremendous pressure in the short-term while trading below the 1.2130 level. This is because the 1.2130 level is the neckline of a large head and shoulder pattern.
According to the overall size of the bearish price pattern, the EURUSD pair could fall towards the 1.2000 level while trading below the 1.2130 level. Bulls really need to hold the price back this area to relieve short-term selling pressure.
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EURUSD Medium-Term Technical Analysis
The daily time frame shows that a bullish breakout from a large descending broadening wedge remains in play while the price trades above the 1.2000 price level.
It is possible that lower and higher time frame analysis are aligning, meaning that a drop towards the 1.2000 support area is pending.
If this does occur, and the EURUSD pair bounces from the 1.2000 area, then this expected drop could be an excellent chance to get position for 1.2330, 1.2500, and potentially 1.2800 over the coming months.
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