The euro currency has reversed all of last week’s hard-earned gains against the US dollar as weaker than expected Chinese and US data this week has caused a notable bid-tone in the greenback versus most major currencies.
Since the COVID-19 pandemic first came to the markets attention the US dollar has been the currency of choice when the Chinese economy starts to falter due to the adverse effects of COVID-19 to the global economy from weaker Chinese growth.
Another reason why the US dollar may be strengthening is Jackson Hole. Traders and investors are expecting a more hawkish tone from the FED during the Jackson Hole policy statement.
In fact, some economists are expecting a game changer, with the FED actually laying out a timeline for tapering. With expectations this high traders are naturally cautious about being short the US dollar.
In my opinion the market could be setting itself up for a fall if the Federal Reserve fails to mention a QE date. Rising COVID-19 cases and the prospect of more weak US data and possible US lockdowns all have the ability to derail the hawkish case.
Until we see a clear shift in market sentiment towards the EURUSD pair it is probably very risky being long the pair. A clear confirmation is needed, such as weak jobs data and lockdown in the US economy to initiate EURUSD longs.
The ActivTrader market sentiment tool shows that sentiment is very bullish towards the EURUSD pair right now. I would suggest this is bad sign for short-term bulls and could signal more losses. If the herd remains bullish watch out for more EURUSD downside under the 1.1700 level.
EURUSD Short-Term Technical Analysis
The EURUSD pair is extremely oversold on the lower time frames and key indicators, such as the MACD, Momentum, RSI and CCI indicators are heavily in the negative and very oversold.
Large amount of bullish price divergence has formed on some of these indicators, with the most striking areas of price divergence found at the 1.1750, 1.1845, 1.1975 and 1.2135 levels.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame, a range break is starting to take place as bears have break broken 1.1700 support area, following the early-week reversal from the 1.1800 resistance level.
If the breakout does hold the 1.1640 and 1.1510 support levels are the next key downside levels to watch if a breakout does take place.
EURUSD bulls looking for a buy signal, may need to see the pair holding above the 1.1800 level, which could cause a potential trend to change above the pair’s 200-day moving average.