The EURUSD pair tumbled lower on the foreign exchange market last week as Italian political drama and safe-haven flows back into the US dollar, after much weaker-than-expected retail sales data from the world’s largest economy.
News that Pfizer vaccines will be delayed coming to Europe also hit the euro currency and stocks hard last week. The FX market started repricing the euro currency and EU stocks following the shock announcement.
From a technical perspective the EURUSD pair appears primed for further losses, as a huge head and shoulders pattern is looming across the lower and higher time frames. A number of euro crosses, such as the EURGBP and EURAUD also have the same pattern, which could indicate further weakness in the euro currency ahead.
This week the euro currency has plenty of top-tier economic data points to digest, and also the European Central Bank meeting, which is traditionally a big market mover for the single currency on the foreign exchange market.
The prospect of the ECB taking a dovish stance towards eurozone economy is not hard to imagine as COVID-19 ravages through Europe, and especially since the powerhouse of Europe, Germany, is currently in an extended lockdown.
Cases are also starting to rise across other important European economies, with particularly focus coming back on France, which is another key driver of eurozone economic activity. Dovish commentary from the ECB certainly has the potential to sink the EURUSD lower this week.
Traders also have to contend with ongoing political chaos in Italy. Last week, rising bond yields in Italy drove the decline in the euro currency lower for most of the week.
Another key risk for the euro at the moment is the prospect of more stimulus from the US economy. This could cause investors to move back to US, hence demand for the greenback could start to increase.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that a head and shoulders pattern with substantial downside potential has formed, following the recent price drop towards the 1.2070 support area.
According to the overall size of the bearish price pattern the EURUSD pair could drop by around 300 points if sellers activate the pattern and send price under the key 1.2060 support level.
Source by ActivTrader.
In terms of strategy, traders that are bearish towards the EURUSD pair may wait until the price drops under the 1.2060 level or fade any strength back above the 1.2100 level.
Key swing zones for the EURUSD pair above the 1.2100 level are currently located around the 1.2030 and 1.2070 resistance areas.
A sustained move past the 1.2200 level and traders may see stop loss triggered, causing a wave of buy orders back towards 1.2250.
EURUSD Medium-Term Technical Analysis
Looking at the daily time, the chart shows plenty of scope for downside potential, as a similar size bearish head and shoulders pattern to the four-hour time frame is also present.
A key technical breakout below a long-term trendline has taken place on the weekly time frame. This could mean that the recent move to 1.2350 was a false breakout. The weekly, and the monthly price close around the trendline will be particularly important.
Source by ActivTrader.
This week, the key trendline in question comes in around 1.2125. This also explains the fierce technical battle around this area last week.