The EURUSD pair reversed sharply lower last week, after testing the 1.1480 level earlier this month and appearing very overbought from a technical and fundamental standpoint.
This week policy divergence between the US and EU central bank is likely to come into effect as the FED taper and lay the foundations for a coming rate hike. Possible even one this Wednesday.
Last week European Central Bank President Christine Lagarde told the virtual World Economic Forum that the conditions that are forcing the Federal Reserve to raise interest rates are not present in the Eurozone.
Lagarde added that where wages are rising much more slowly, and that over half of the inflation being currently reported is due to energy prices, and thus likely to reverse.
This does not bode well for the EURUSD pair, neither does the tensions coming from Ukraine, which could stifle growth and add to the looming energy prices crises.
Currently, a big reversal in the EURUSD pair is pending, due to the hawkish FOMC, with the FED likely to surprise most market participants with its bullishness this week.
Big moves are taking place in the bond market. The US 10-year bond yield has moved sharply to the upside, further pressuring the EURUSD pair to the downside.
Sentiment is also on the side of neutrality, which leads me to further believe that the EURUSD pair could be about to reverse, as 50 percent of traders are at least still bullish here.
EURUSD Short-Term Technical Analysis
The four-hour time frame shows that the EURUSD pair is still trapped inside a large descending triangle pattern, which is located between the 1.1380 and 1.1200 levels.
A break under the descending wedge and 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.
EURUSD Medium-Term Technical Analysis
Looking at the daily time frame and the EURUSD pair is truly trading at an inflection point, as it tests towards the top of the Ichimoku cloud.
A big rejection from the cloud and the EURUSD pair is likely to be in trouble again. Sustained weakness ahead is likely if bulls continue to stall around the cloud, setting up the 1.1150 and 1.1000 levels as likely bearish targets.