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The euro currency is set for a big week on the currency market over the coming days, as the European Central Bank delivers an important rate decision, and the release of April preliminary PMI manufacturing data is also set to drop.
Last week the EURUSD pair posted its second consecutive positive trading week and broke above its 200-day moving average. The dynamics have clearly changed in that selling pressure has subsided and traders are now buying any dips.
What I find strange is that the US dollar is not moving higher when data outperforms, and the traders and investors are not worried about the United States economy far outpacing Europe in terms of growth at the moment.
Something else that has been underpinning euro strength is the EURGBP pair. However, sterling looks to have found a price floor last week, and optimism towards the UK economy is high, so that trade could start to unwind at any time, and place stress back on the EURUSD pair.
Getting back to the data, the ECB would need to talk down the single currency this week in order to spark a strong bearish reaction in the EURUSD, and EU PMI data would need to turn down significantly to change the markets mood towards the EURUSD.
As always the German manufacturing PMI will be key. Traders and investors often forgive weakening EU PMI data as long as the German PMI is showing strong growth. Germany remains the engine behind the entire EU economy as always.
Looking at retail sentiment a major sentiment shift has happened since last week, which is a potential red flag for bulls. Negative sentiment has increased to 75 percent now, which is big change from 55 percent bearish just five days ago.
Watch out for further losses in the EURUSD pair while sentiment remains this bearish. Historically, extreme negative sentiment has not been a friend to euro bulls.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that an inverted head and shoulders pattern remains the central focus of short-term traders. A sustained break above the 1.1890 level is currently needed to ignite the bullish price pattern.
Watch out for a move towards the 1.2060, and possibly the 1.2100 area if the pattern gets ignited this week. With bearish sentiment so high, a third week of gains is not outside the realm of possibility.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, a large price pattern and Fibonacci analysis are leading the way. Starting to Fibonacci analysis, the price is holding above the 50 percent Fibonacci retracement of the current yearly low to the February swing-high, around 1.2100.
Bulls are therefore likely to test towards the 61.8 Fibonacci retracement level, around the 1.2030 level. A further breakout above the 1.2030 resistance level could lead to a rally towards the 1.2100 region.
Price pattern analysis also shows the presence of a descending broadening wedge pattern. It should be noted that this is a bullish reversal pattern. The top of the wedge pattern is a potential target, around 1.2130. A break above the pattern could see the EURUSD pair exploding to new highs.
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