EUR/USD Price Analysis: Breakout traders triggered long, bears looking to pounce

EUR/USD bearish W-formation is in focus.
Bulls could find themselves trapped in trying to break out through recent highs.
US CPI red news event could be the catalyst for a sizeable downside move.

Ross J Burland FXStreet

EUR/USD broke to the backside of the bearish trend at the end of last year. It has since rallied towards a key resistance area but has started to slow in its ascent which leaves the focus on signs of distribution for the days ahead. The following illustrates this on a daily chart and highlights a key reversion pattern that has emerged at the start of the year:

EUR/USD daily chart

EUR/USD has reached up to test prior highs of 1.0736 and has moved into a critical resistance area as a potential last stop before the bears move back in.

Zoomed in...

Should the bears emerge below 1.0790, then the focus will be on signs of distribution again that will ultimately trap the breakout long positions.

The W-formation is supportive of such a thesis given that it is a reversion pattern. EUR/USD would be expected to revert towards the neckline and day's lows of near 1.0637. This could put the trendline support back under pressure and open the risk of a move below 1.0500 and on to test 1.0480, 0.0440 and then 1.0300 that guards 1.0290 and 1.0225 lower down.

EUR/USD H1 chart

In the meantime, the lower time frames can be monitored for signs of buying exhaustion love the coming sessions:

A long squeeze below 1.0750/36 could be in order for the sessions and days ahead with US Consumer Price Index eyed as a potential catalyst on Thursday for a three-day set-up and bearish opportunity.

With that being said, a test of 1.0800 is on the table beforehand:

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD drops to daily lows near 1.1630

EUR/USD now loses some traction and slips back to the area of daily lows around 1.1630 on the back of a mild bounce in the US Dollar. Fresh US data, including the September PCE inflation numbers and the latest read on December consumer sentiment, didn’t really move the needle, so the pair is still on course to finish the week with a respectable gain.

GBP/USD trims gains, recedes toward 1.3320

GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.

Gold makes a U-turn, back to $4,200

Gold is now losing the grip and receding to the key $4,200 region per troy ounce following some signs of life in the Greenback and a marked bounce in US Treasury yields across the board. The positive outlook for the precious metal, however, remains underpinned by steady bets for extra easing by the Fed.