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The euro currency has been advancing against the US dollar this week, following a lack of selling interest below the pair’s trend defining 200-day moving average, around the 1.1890 technical support area.
Price action earlier this week provided plenty of hints that the bulls may be preparing to take the EURUSD pair even higher. The market reaction to the strong US CPI number on Tuesday confirmed that bulls are now firmly back in control.
A key consideration right now is sentiment. The ActivTrader Market Sentiment tool shows that some 83 percent of traders are bearish towards the euro right now, despite the EURUSD pairs trend turning bullish again this week.
Typically, fading what the retail herd does yields solid results. Retail traders tend to lean against the prevailing market trend, and this is a clear case in point, as EURUSD bears remain in a state of denial about the latest run higher.
I would suggest that the upside momentum in the current up move is only going to accelerate if we continue to see sentiment stay around current levels, or indeed increase. Bearish sentiment has risen by some 3 percent since the start of the week, when around 80 percent of traders had a negative outlook towards the EURUSD.
In terms of technicals it is hard to be bearish towards the EURUSD pair while the price comfortably trades above its 200-day moving average, around the 1.1890 level. Additionally, buying demand for the EURGBP pair is underpinning a strong bid tone in euro pairs right now.
Looking at the potential upside for the EURUSD pair for the rest of the week, a bullish reversal pattern is pointing to a possible run towards the 1.2100 benchmark level. Bulls first need to conquer the psychological 1.2000 level first. In terms of bearish catalysts, the US retail sales report could cause a notable pullback in the EURUSD if it comes in hot.
The ActivTrader Market Sentiment tool usually signal a possible sentiment reversal when one-way skews start to reach 90 or even 95% percent. This could suggest that the short squeeze or new bullish trend is only likely to continue.
EURUSD Short-Term Technical Analysis
According to the four-hour time frame a bullish reversal pattern will be activated if bulls rally the pair above the 1.1890 level. A potential rally towards the 1.2200 price area could then take place.
Looking at Fibonacci analysis, a break above the 1.2020 level would leave the EURUSD pair with little option but to rally towards the 1.2100 level, and quite possible the target of the mentioned bullish pattern.
Key support for the EURUSD pair in the near-term horizon is currently found at the 1.930 and 1.850 levels.
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EURUSD Medium-Term Technical Analysis
Looking at the daily time frame a descending broadening wedge pattern can clearly be seen. This is one of the most bullish price patterns in terms of tradeable reversal patterns.
EURUSD traders should know that a breakout the 1.2190 level would ignite this pattern, which could potentially send the EURUSD pair skyrocketing towards the 1.2500 resistance area.
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