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September 7, 2021

Bearish Turn Ahead in EUR/USD?

 With traders returning from the Summer and the European Central Bank monetary policy statement ahead, volatility should pick up nicely for EUR/USD.

Will this lead to a break and directional move away from the 1.1900 major psychological area?

Bearish Turn Ahead in EUR/USD?

Two weeks ago, I discussed how we may see a bounce on EUR/USD, and to be on the look out for bearish reversal patterns around the 1.1800 area. Well, the bounce did come, but it extended all the way up to the 1.1900 handle, likely on growing speculation that the Fed may delay their tapering plans, especially after a very disappointing round of U.S. jobs updates last week.

With EUR/USD now retesting the 1.1900, it’s a little bit less certain on where the next move may be, especially with the latest monetary policy statement from the European Central Bank coming this week. Expectations are that ECB is will not make any changes to interest rates or their bond purchasing program, and the outlook isn’t clear on what the plans are for when the Pandemic Emergency Purchase Programme (PEPP) expires in 2022.

So, we’re in wait-and-see mode when it comes to EUR/USD, but the odds are pretty good that volatility will pick up quickly on the ECB event. And if we see the ECB lean negative on their growth and inflation forecasts, then that lines up nicely with the bearish technical patterns pointed out on the daily EUR/USD as discussed by Big Pippin, as well as on the four hour chart above. All combined, the odds rise significantly that EUR/USD could draw in the bears looking for both swing and longer-term trading opportunities.

Now, if the ECB surprises the markets with an optimistic round of growth and inflation updates, that certainly raises the odds of EUR/USD moving higher, especially with the continued bearish sentiment on the U.S. dollar, strengthened by the U.S. jobs data. In that scenario, watch out for a break above the 1.1900 – 1.2000 area before considering a long position.

What do you guys think? Will the bears take back control of EUR/USD at 1.1900 – 1.2000 or is an upside breakout opportunity forming to play the falling odds of Fed tapering?