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The euro is looking bullish against the US dollar as market sentiment remains bullish after the ISM report last week causing the single currency to reach a level not seen since June last year.
A big rejection from the 1.0750 to 1.0800 level and a subsequent failure could cause trade to ponder that a deeper price correction is coming for the euro.
This Thursday the US dollar is likely to come under scrutiny as the US CPI report comes out for December. It still remains to be seen whether this will bed good or bad for the EURUSD.
Rate watchers would know that high inflation and low unemployment prints would imply further large hikes from the FED as we are likely to see 50-basis points hikes at the next two policy meetings.
However, a lower print will likely cause traders to consider a 25-basis point increase coming. If the print is higher than expected we could the EURUSD could be headed technical weakness.
I would expect that the pair could eventually headed down towards lows of the year and then possibly as low as the 1.0200 level.
The ActivTrader Sentiment tool suggests that 85% of traders are bearish on the EURUSD. This is still very worrying if we consider that traders are still selling despite the latest price ramp 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.
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The EURUSD is currently showing a large amount of negative MACD price divergence has formed. The size of the divergence would indicate that a short-term bottom and a coming correction towards the 1.0300 area.
This is a worrying chart for the EURUSD over the short-term for bulls. This bearish divergence is actually projecting a move of around 400 points.
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According to the daily time frame, the pair has broken above a large falling trendline and formed a bullish reversal pattern, which has projection for the EURUSD of around 1000 points.
As long as the EURUSD pair stays above the 1.500 price level then medium-term analysis shows that further strength towards 1.1500 is possible.
