The euro is still looking bearish against the US dollar due to weaking EU data and the perception from the market that the Fed could hike interest rates next month.
Persistent inflation helped push Germany into recession in the first three months of the year, raising fears that the health of the eurozone economy is much worse than feared.
Europe’s largest economy was also badly affected when Russian gas supplies dried up after the invasion of Ukraine, plus no source of energy away from Russia appears to have been found.
The economy contracted by 0.3% between January and March, the statistics office said. That followed a 0.5% contraction in the last three months of last year.
Also, a clear range break has taken place for the euro, leaving a very large focus on a pending test of the 200-day moving average ahead.
Recently, the EURUSD pair has seen numerous upside failures seen around the 1.1000 area and the extremities of the year, close the 1.1100 area.
I would expect that the pair could eventually headed down towards 1.0300 level and then possibly 1.000 later in the year if we see sustained weakness under 1.0600.
The ActivTrader Sentiment tool suggests that 64% of traders are bullish on the EURUSD. This is still very bad if we consider that traders are still that bullish despite the big price fall.
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 positive technical development called bullish momentum divergence, this usually is suggestive of higher prices to come.
This above chart also shows clearly the bullish divergence has formed on the momentum indicator, which extends upto the 1.0900 price level.
According to the daily time frame, the pair has recently invalidated a large, inverted head and shoulders pattern, which has projection for the EURUSD of around 500 points.
As long as the pair trades above the 200-day moving average, around the 1.0500 level we are likely to see this pattern playing out towards the 1.1500 level.