The market is beginning to factor in a more hawkish path for the Federal Reserve due to the consistently positive economic data since the last FOMC meeting. According to Fed Chair Powell, if the data remains strong, a majority of the FOMC anticipates two or more rate hikes this year.
Conversely, the European Central Bank (ECB) has already committed to a rate hike in July, but there is a strong debate about their plans for September. In fact, recent economic indicators for the Eurozone have been disappointing significantly, indicating a potential recession in the second half of the year.
All else being equal, we should see EURUSD pair trending downwards as the market adjusts its expectations, discounting the likelihood of ECB rate hikes and factoring in the possibility of rate cuts.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that we might have a major head and shoulders pattern with the black neckline coming roughly at the 1.07 handle. The moving averages are crossing to the downside indicating a possible change in trend, but the price will need to fall below the 1.0840 to confirm it. In case we see a break below the neckline, the target should be the 1.02 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has recently broke below the upward trendline and made a new lower low. In fact, the price has formed a king’s crown pattern, which is similar to the head and shoulders pattern, but has the right shoulder low lower than the left shoulder one. We now have a support level at 1.0840 where the buyers keep on piling in to target a breakout of the 1.1033 high.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has recently broke below the neckline of the double top pattern marked by the two orange arrows. This is another signal that the bearish momentum is prevailing, and the sellers are in control. Once the price breaks below the support with conviction supported by a fundamental catalyst, we can expect a selloff into the 1.07 handle. The buyers will need to break above the 1.0940 resistance zone to invalidate the bearish setup and start another uptrend.
Upcoming Events
Today the data to watch will be the US Jobless Claims and the US ISM Services PMI, while tomorrow the markets will focus on the main event of the week: the US NFP report. If we see beats to the expectations, we will likely see the EURUSD falling as the market will price in even more hawkishness from the Fed. On the other hand, if the data misses forecasts, EURUSD may rally as some of the hawkishness will be priced out.
