The euro currency has a huge week ahead against the US dollar on the foreign exchange, following last week’s bearish reversal from a multi-year trading high, around the 1.2350 level.
It was notable that the EUR/USD pair started to sell-off between Wednesday and Friday of last week after the Democrat party secured electoral victories in Georgia, and control of the US Senate.
The prospect of a massive incoming economic stimulus package from the Biden administration failed to sustain the breakout above the 1.2300 handle for the EUR/USD pair.
Investors may have factored in improved growth prospects for the US economy from the stimulus package, and demand for greenback was also apparent after the outcome of last week’s political events.
While it is too early to call an end to the nine-month bullish rally in the EUR/USD pair, it is certainly time to consider that a considerable bounce in the US dollar index may be about to take place, which could in fact harm the EUR/USD pair over the short to medium-term.
Looking at other euro crosses, the EUR/AUD pair looks particularly bearish, while the EUR/GBP pair is starting to look heavy as bulls have failed to gain real upside traction above the 0.9000 handle, following numerous upsides attempts over recent months.
Again, it is still too early to call an end to the overall bullish trend, but optimism over the US economy, vaccine roll-out, new guidance towards QE4 from the FED are all reasons to keep a close watch on the EUR/USD this week.
EURUSD Short-Term Technical Analysis
The EUR/USD pair is in an extremely interesting technical spot at the moment, and quickly needs to recover above the 1.2275 resistance level this week to avoid heavy losses.
Lower time frame analysis show that the 1.2275 level is the head of a former head and shoulders pattern and the bottom a rising wedge pattern, which broke to the downside last week.
Source by ActivTrader.
Failure to hold the price back above the 1.2275 level could send the EUR/USD pair towards the 1.2130 level, and possibly much lower over the short to medium-term.
It should be noted that the William Alligator Indicator on the four-hour time frame is issuing its first major sell signal since October last year.
If bulls start to stabilize the EUR/USD pair above the 1.2250 level then watch out for a powerful counter-rally back towards the 1.2350 area, with the 1.2410 and 1.2450 levels the likely upside targets.
EURUSD Medium-Term Technical Analysis
Looking at the daily time chart, an extremely large head and shoulders pattern will be a key focus for traders this week if price reaches neckline support, around the 1.2130 level.
According to the size of the bearish pattern the EUR/USD pair could fall towards the 1.1950 area if the pattern if activated.
Source by ActivTrader.
Failure to activate the bearish pattern to the downside could cause a counter-rally in the EUR/USD pair towards the 1.2250 and 1.2275 levels.
It should also be noted that the RSI indicator is flagging negative price divergence on the Relative Strength Index towards the 1.1980 level.