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The euro currency is trading towards the bottom of its yearly trading range against the US dollar as fears over the COVID-19 Delta variant has caused risk-on trades, such as buy EURUSD, to suffer.
EURUSD traders have all to play for as the pair is starting to show technical signs that a major reversal could be imminent ahead of the European Central Bank interest rate decision and policy decision.
The trouble that EURUSD bulls face is that the US dollar is likely to be increasingly in demand as long as COVID-19 and new lockdown fears remain high. Previous price behaviour has taught us that the greenback is investors choice during times of extreme risk-off sentiment.
In the near-term, the EURUSD is showing signs that a bounce could happen at anytime as both the MACD and Momentum indicators have formed significant amounts of bullish price divergence.
In terms of current sentiment, the ActivTrader market sentiment tool shows that bullish sentiment has increased dropped since last week. This is a good sign. The decrease is quite large, with a drop of 20 percent taking place.
The ActivTrader market sentiment tool shows that bullish sentiment is now at 60 percent. I expect more EURUSD weakness in the near-term until the herd starts to actually turn bearish.
EURUSD Short-Term Technical Analysis
The EURUSD pair looks to be forming a large falling wedge pattern has formed during the recent price decline. Falling wedges are typically extremely bullish reversal patterns.
If we see the EURUSD pair making a break above the 1.1845 level then a powerful reversal may begin. Bullish MACD and Momentum price divergence is also in play now.
To the downside, a break under the 1.1750 level could see the EURUSD pair testing the 1.1705 or 1.1600 levels. I currently favour the bullish scenario rather than the bearish scenario.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame the yearly low is found around the 1.1705 level, meaning that bulls need to defend this area to form a notable double bottom pattern.
Should we see the 1.1705 level broken, I fully expect a major price decline towards the 1.1600 level. Make no mistake, this is a make-or-break time for the EURUSD pair.
It is noteworthy that the EURUSD pair’s 200-day moving average is found around the 1.2050 level. If the EURUSD pair turns technically bullish again I would expect a test towards the current yearly high.
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