The euro continues to rise against the US dollar as market sentiment turns bearish for the pair at an alarming right, signalling a wholesale shift towards the single currency.
A pick-up in positivity towards the situation at Deutsche bank was always going to be a driving force for the euro. Markets have reacted well to the drop in Credit Default Swaps.
Germany is a key powerhouse economy coming into focus today as we see the release of CPI data for the largest economy in the eurozone at a time when hopes are high for peak inflation.
Forecast to have risen by 7.3% on the year last month. If it does, it will underline central banks’ broader dilemma in which, for sure, inflation appears well off its recent highs.
At the same time hugely above the 2% or so targeted by the ECB is still higher than is expected. As such, a higher inflation reading today could have a positive effect on the euro as traders’ factor in more rate hikes.
On the flipside, a decreased CPI reading than the market is expecting could sink the EURUSD as they factor in a potential no rate hike scenario.
The ActivTrader Sentiment tool shows that only 24% of traders are bullish on the EURUSD. This is a very bad sign for bears if we consider that retail traders are still selling despite the strong reversal this week.
As traders, we typically look to fade retail sentiment when it is overly skewed in one direction. This style of trading, fading sentiment, has been one of the most effective and used tactics of hedge funds.
The EURUSD is currently showing a large inverted head and shoulders pattern has been activated on the four-hour time frame. The size of the pattern would indicate that a short-term bottom could be nearing around the 1.1100 area.
This bullish chart for the EURUSD over the short-term is complete and we could see a coming rally while the price trades above the 1.0800 level.
According to the daily time frame, the pair is also activating a large inverted head and shoulders pattern, with the target of the pattern located close to 1,000 points.
As long as the EURUSD pair stays above the 1.0800 price level then medium-term analysis shows that further strength towards 1.1600 is possible.