The euro is still looking extremely bullish against the US dollar due to the strong technical breakout last week and also developments surrounding the US dollar.
Last week the US dollar index posted one of its biggest losses in the currency markets in years, which caused the EURUSD to trade towards the 1.1100 handle.
The latest German ZEW economic sentiment report shows optimism fading in April. The economic sentiment indicator fell to 4.1, missing expectations of 15.3 and last month’s reading of 13.
According to ZEW President Professor Achim Wambach, Economic expectations are negatively affected by several factors. Experts expect banks to be more cautious in granting loans, however, it has not deterred from moving higher on Tuesday.
Due to the fact that the euro has the largest weighting inside the DXY basket of currencies it is likely that if the US dollar technical down move continues, we are likely to see EURUSD strength.
I would expect that the pair could eventually headed down towards 1.1200 level and then possibly as high as the 1.1500 level later in the year.
The ActivTrader Sentiment tool suggests that 65% of traders are bearish on the EURUSD. This is still very good if we consider that traders are still that bearish despite the latest price rise.
As traders, we typically look to fade retail sentiment when it is overly skewed in one direction. This style of trading, fading sentiment, has been one of the most effective and used tactics of hedge funds.
The EURUSD is currently showing a solid technical development called higher highs and lower lows, this usually is suggestive of higher prices to come.
This is a bullish chart for the EURUSD for the short-term for buyers. What we need to see is the EURUSD pair continue to make higher highs on a weekly basis.
According to the daily time frame, the pair has broken above a large head and shoulders pattern, which has projection for the EURUSD of around 500 points.
As long as the EURUSD pair stays above the 1.0800 price level then medium-term analysis shows eventual strength is likely towards 1.1500.