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The EURUSD pair has reversed from the 1.1290 support zone and is testing towards the top of its recent yearly trading range ahead of Chair Powell’s testimony before US Congress.
A major range break could take place over the next forty-eight hours, especially given that we Chair Powell speaking and the release of the US CPI inflation report.
For most of this year so far the EURUSD pair has seen volatile and choppy range bound trading. Technical analysis is pointing to major breakout once range bound conditions are passed, based on some of the patterns on the lower- and upper-time frames.
UOB bank has a view that choppy trading in the euro is here to stay. The bank notes “the volatile price actions have resulted in a mixed outlook. For today, EUR could continue to trade in a choppy manner, likely between 1.1295 and 1.1365.”
The banks view over the next 1-3 weeks is that “one week ago (04 Jan, spot at 1.1305), we highlighted that the outlook for EUR is unclear, and we expected it to trade between 1.1240 and 1.1395. EUR traded in a choppy manner the last several days and there is no change in our view for now.”
For me, I think a major breakout is looming. Personally, I think risk sentiment is what is going to cause a major breakout in the EURUSD pair.
On the topic of market sentiment, bulls are expecting further gains and are in the majority, which leads me to further believe that the EURUSD pair could be about to reverse and target much lower levels.
The ActivTrader market sentiment tool current shows that 60 percent of traders are bullish towards the EURUSD. Typically, we look to fade retail sentiment skews.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair has formed a large head and shoulders pattern. These patterns are typically considered to be bearish reversal patterns.
A break under the 1.1270 area, or neckline support, and the downside risks will build significantly for the EURUSD pair this week.
The overall size of the pattern indicates a drop of 100 points which would actually take the EURUSD pair close to the 1.1150 level. This makes sense of the FED are hiking rates.
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Please note that the EURUSD pair could head much higher if bulls continue to defend the 1.1350 because the euro is relatively oversold still according to some metrics.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame and the EURUSD pair is still trapped inside a wedge pattern. This wedge pattern could be a continuation pattern by the looks of things.
Even though the pattern has a downside projection of 180 pattern, the consolidation has been going on for a while, hence a much larger move could happen once a break occurs.
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