EURUSD Technical Analysis – Dip buyers could be rewarded

The EURUSD could be set for a decisive move this week after largely suffering from traders’ indecision last week as the pair range traded between the 1.1800 and 1.1900 price level.

Following the European Central Bank policy meeting, the euro rose slightly as the ECB signaled it will only slightly reduce its emergency bond purchases over the coming quarter.

The ECB also gave no signal of its next policy move last week, further increasing indecision, traders continue to ponder how it might dismantle the 1.85 trillion Pandemic Emergency Purchase Program, known as PEPP.

Goldman Sachs has a bearish view on the greenback for the rest of the year. The investment bank dropped a note to investors which noted “Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.”

The bank added “The Dollar’s correlation with Treasury yields tends to vary over time and depends on the underlying macroeconomic fundamentals driving rates and FX markets. In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness.”

Morgan Stanley also slashed its growth forecasts for the US at the same time, which was also seen as a negative catalyst for traders to book profit. This is one reason why risk-off market sentiment could drop the EURUSD pair this week, as stocks currently do look somewhat frothy.

In terms of technical, the EURUSD pair is going to be driven by the mood of the buck. The price charts clearly show that a definitive break from the 1.1700 to 1.1900 area is required to start a new price change.

I personally favour a lower before higher scenario, where the EURUSD pair test close to the 1.1700 handle, starts to recover, and eventually cracks the 1.1900 level.