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The EURUSD pair is back under pressure below the 1.1300 level as the greenback starts to rise again as recent speeches from FED members suggest that the pace of tapering may quicken.
As the FED admits that inflation is not transitory it is likely that a rate hike is coming sooner than expected. This is likely to be further supportive of near-term US dollar strength.
With this in mind, we need to consider that the EURUSD pair is likely to have not yet bottomed, hence why the buying the euro against the US dollar is currently a risky proposition.
In terms of how low the EURUSD pair could go the 1.1150 level offers huge support, as does the psychological 1.1000 level, which often acted a major support barrier.
We should also consider that the US dollar index is going to play a major part in how low the US dollar index can go. The 98.00 to 98.50 is a favourable reversal spot and technical resistance on the chart.
Sentiment is also starting to rise, which is a bad sign for bulls. Sentiment has increased about 13 percent since last week, despite the big euro reversal.
The ActivTrader Market Sentiment tool shows that some 68 percent of traders are bullish towards the EURUSD. This sentiment metric is not at peak euphoria.
However, we probably need to see sentiment turning wholesale negative before a major reversal can commence. Watch closely what the retail crowd are doing over the coming weeks, it could be a great leading indicator.
EURUSD Short-Term Technical Analysis
The four-hour time frame continues to show that the EURUSD pair has now formed a large, inverted head and shoulders pattern, however, downside risks are building.
Further losses below the 1.1220 level would likely see heavier downside this week as bearish momentum grows. The 1.1150 level is a solid bearish target for EURUSD traders.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame a large head and shoulders pattern has yet to reach its target, although we could likely see a final test of neckline resistance this or next month.
If the EURUSD pair continues to hold above the 1.1200 level then a move to neckline resistance, around the 1.1540 area could happen this month, Any weakness towards the 1.1140 or 1.1000 area could also be a buying opportunity over the medium-term.
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