The euro currency staged a bearish reversal back towards the 1.1870 support level against the US dollar last week, as the pair reversed all of its post FOMC meeting gains. A major range break appears to be looming.
This week the EURUSD pair could be affected by a number of important events on the economic calendar. The release of preliminary PMI manufacturing data from the eurozone and Germany, and a slew of top-tier economic data releases from the United States all have the ability to cause a major directional move.
Last week, the EURUSD failed to move above the 1.2000, marking a notable technical failure and lack of demand for the pair above the 1.2000 handle. The futures market is also showing a notable trend of traders trimming longs.
The CTFC Commitments of Traders report showed that EURUSD longs were cut back by 12,000. Traders have been steadily reducing exposure to EURUSD longs over recent weeks as the uptrend comes into question.
A number of technical indicators are flashing sell signals, while the pair is close to turning technically bearish below its 200-day moving average. A significant directional move looks set to take place once the 1.1840 to 1.2000 range is broken.
Momentum is certainly to the downside after last week’s rejection from the 1.2000 level. The US dollar index is gaining upward momentum. This was also highlighted in last week’s CTFC report, as all US dollar positions were trimmed back.
In terms of sentiment, the ActivTrader platform shows that some 69 percent of traders are bullish towards the EURUSD. Sentiment has turned much more bullish since last week, despite the underperformance in the EURUSD.
The positive bias is still not an alarming level; however, it now suggests that traders may be on the wrong side of the market, and this could create the type of conditions for the EURUSD pair to falter further.
EURUSD Short-Term Technical Analysis
According to the four-hour time frame the EURUSD pair could be preparing to drop towards the 1.1700 level. The pair has a negative bias below its 200-day moving average, and also formed a bearish double-top pattern last week.
It is also noteworthy that an inverted head and shoulders pattern was recent invalidated, following the early-month break under the 1.1955 support area. A bearish head and shoulders pattern has also formed on the one-hour time frame.
According to the overall size of the head and shoulders pattern a 100-point drop could be about to take place, placing the 1.1800 level as a potential bearish target.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, the EURUSD pair suffered a big rejection last week, after bulls failed to overcome critical resistance from the Parabolic SAR indicator, at 1.1990.
Furthermore, sellers are struggling to breach the pairs 200-day moving average, at 1.1840. Watch out for a major directional move in the EURUSD pair once the 1.1990 to 1.1840 price range is broken.