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The euro currency moved higher with rocket ship momentum against the US dollar last Friday after the Non-farm payrolls job report helped underpin the notion that the Federal Reserve will need to keep the foot on the printing presses as jobs data underwhelmed.
April’s weak US job number also complimented the ISM manufacturing report, which highlighted that US economic activity is starting to slow down. Markets are now turning their ultra-bullish skew towards the US economy to one of concern.
Last week’s CFTC report showed that EURUSD longs increased amongst futures market participants. Furthermore, buying volumes towards the EURUSD hit an eight-week high on the spot market last Friday.
This week, the CPI report and an ongoing breakdown in the US dollar index are catching my attention. A strong CPI report could send the markets into a tailspin. Rising inflation in a weak growth environment is the Federal Reserve’s most undesired outcome right now.
Big moves in the US dollar index could also have significant consequences for the EURUSD. The technical for DXY clearly show a break below the 89.00 level could cause heavy technical selling towards the 86.00 level.
On the technical front for the EURUSD, the recent move above the 1.2080 is a big deal for bulls because a huge bullish pattern has now been activated, which has an upside target of at least 400 points. This would take the EURUSD towards the 1.2400 handle.
Looking at retail sentiment negative sentiment towards the EURUSD pair has reached 73 percent negative now, which means that retail traders are on the wrong side of the move in worryingly large numbers. This is likely to signal further heavy losses if retail traders hold the ongoing bearish stance towards the EURUSD.
EURUSD Short-Term Technical Analysis
Bears have to be very careful this week, after the EURUSD pair broke above a large descending broadening wedge pattern. These types of patterns are amongst the most bullish amongst a wide array of reversal patterns.
The pattern holds an upside target of over 400 points and is in play while the EURUSD pair trades above the 1.2080 level. Overall, expect big gains in the EURUD towards the 1.2200, 1.2300 and 1.2400 while the wedge break remains in play.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, a bearish head and shoulders pattern is in danger of being invalidated if bulls take out the 1.2340 level. It remains to be seen whether this will happen this week.
This will be a significant and bullish medium-term development for the EURUSD pair if this pattern is invalidated. The invalidation of the head and shoulders pattern would suggest that the EURUSD is headed towards the 1.2800 level over the medium-term horizon.
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