The EURUSD pair has reversed sharply after testing the 1.1340 resistance zone yesterday, due to the much stronger than expected United States ADP Private Jobs report.
Currently, the big reversal in the EURUSD pair is due to the hawkish FOMC meeting minutes, with the FED surprising most market participants with its timeline for balance sheet tightening.
The biggest moves are taking place in the bond market. The US 10-year bond yield has moved sharply to the upside, and even the 30-year yield is starting to move.
I would say that the potential for yields to stay more elevated is high. However, we could reach a point where long-term yields stall as the Fed starts to outline the upper limit of its latest tightening cycle
The US dollar outlook is therefore bullish, as higher Treasury yields are typically a good thing for the buck. But please keep in mind that real yields are still in negative territory.
Additionally, the next FOMC meeting is likely to be hawkish due to the positive jobs data and recent sentiment, therefore risk-off sentiment coming from Omicron and rising cases in China could further accelerate demand for the greenback.
Sentiment is also on the side of more losses, 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 64 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 is trading inside a large descending triangle pattern, which is located between the 1.1380 and 1.1200 level
A break under the 1.1270 area and the downside risks will build significantly for the EURUSD pair this week. A reversal from current level back under the 1.1150 level is likely if the 1.1200 level support level cracks with conviction.
The overall size of the pattern indicates a drop of 180 points which would actually take the EURUSD pair close to the 1.1000 level. This makes sense of the FED are hiking rates.
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 trading at an inflection point, as the price consolidates towards the top of the Ichimoku cloud.
A big rejection from the cloud and the EURUSD pair is likely to be in trouble again. A push above the top of the cloud will dramatically change the technical landscape and 1.1500 or 1.1600 is possible.