EUR/USD likely heading further lower

The EUR/USD reversed sharply after failing to hold above the 1.10 handle last week, thanks to strong US data and as the ECB meeting failed to provide much support.

The EUR/USD formed a bearish-looking inverted hammer on the weekly time frame, which is a possible bearish reversal pattern, or at least a temp top stick. The bears will now want to see rates hold below last week's range at 1.0792, while the bulls will want to see a quick recovery back above this level.

Given the bearish price action at the back end of last week, we think that the risks are tilted to the downside for now, with the EUR/USD likely to head down to 1.0710 and potentially lower, before deciding on its next move.

The dollar was higher across the board at the time of writing on Monday. On Friday, the greenback surged higher after the US jobs report came out much stronger than expected, catching many people by surprise. While the additional gains have been limited so far, the dollar’s recovery is likely to be the main focal point in the first few days of the week given the lack of any significant news.

The EUR/USD has not responded in the way you would expect following a hawkish ECB rate decision, although it did get to our 1.10 target before selling off.

Lagarde is worried about high inflation, saying "this is the highest in all the time that core inflation has been in our part of the world... which is why we are committing as we intend in this monetary policy statement, and this is why I say we have more ground to cover, and we are not done."

But her warnings have fallen on deaf ears so far as the EUR/USD has continued to sell off.

There was some mixed data out of the Eurozone this morning. German factory orders rose 3.2% m/m vs. 2.1% expected, while Sentix Investor Confidence on the Eurozone improved to -8.0 from -17.5 previously (vs. -12 expected). But Eurozone retail sales fell by 2.7% m/m, which was worse than expected.

By Fawad Razaqzada
EURUSDTrend Analysis

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