EUR/USD Price Analysis: Bulls may be walking into a trap

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  • EUR/USD bearish W-formation remains in focus awaiting US CPI.
  • The bulls could be caught in an attempt to break out of the recent highs.

EUR/USD is extending Tuesday’s bullish rally and has been attempting to post a fresh opening balance high this week, taking the US dollar to 1.0759 against the single currency in the bullish search for a test of the 1.0800 zone.

However, we do have news marked in red on the calendar for Thursday that aligns with a technically bearish formation on the charts, as will be illustrated below. The bulls could be walking into a trap and, as analysts at Brown Brothers Harriman explain, who continue to believe that markets are underestimating the Fed; “It’s hard to reconcile a recovery in risk with a deep inversion of the US yield curve.”

EUR/USD Technical Analysis

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In previous analysis, it was explained that EUR/USD had rallied towards a key resistance zone, but has started to slow its rise, leaving attention focused on distribution signals for the next few days.

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EUR/USD had come to test the previous highs of 1.0736 and has moved towards a critical resistance zone as a possible last stop before the bears reappear. We have seen a bullish open for Tuesday, but have yet to see an all-time high. However, there is still time until the US Consumer Price Index is released on Thursday, which leaves room to move closer to 1.0800, although in the absence of a major catalyst, it could be difficult.

(Monday above, Tuesday, for now, below)

If bears emerge below 1.0790, the focus will once again be on distribution signals that will ultimately trap breakout longs.

EUR/USD is expected to reverse towards the neckline and previous day’s lows near 1.0637. This could put trend line support back under pressure and open up the risk of a move below 1.0500 en route to testing 1.0480, 0.0440 and then 1.0300, which protects 1.0290 and 1.0225 below.

Source: Fx Street

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