Euro Technical Analysis: EUR/USD Morning Star, ECB on Deck

Euro, EUR/USD Talking Points:

• Last week saw the Euro break down against the USD, setting a fresh yearly low.
• After a doji on Friday, Monday saw a strong bullish move to create a morning star reversal formation. So far on Tuesday that strength has continued on Tuesday and the big focus is on European inflation to be released tomorrow and the European Central Bank on Thursday.
• The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Well it finally happened, EUR/USD pushed below the big zone of support at 1187-1212 to set a fresh 18-month low. The drive emanated from last week’s FOMC rate decision and as rate markets ran wild in the aftermath of that event, USD-strength pushed a number of major pairs to fresh lows.

Given the divergence between US and European rate policy which seemingly continues to expand, sellers have very much remained in-control. The big question at this point seems to depend on just how hawkish the FOMC will remain to be this year and how many rate hikes they might actually get in. But, this isn’t a new theme as this is the same thing that drove the pair for the second-half of last year, all the way into Thanksgiving at which point that major zone of support came into play.

In December, EUR/USD bounced even with sellers remaining active, continuing to offer the pair from resistance at 1.1374. That back-and-forth even led into 2022 trade and along the way the pair built an ascending triangle formation, often approached with the aim of bullish breakouts.

And, even with that fundamental divergence with clear favor to USD-trends given rate expectations, EUR/USD posed a bullish breakout in the middle of last month, fresh on the heels of a 7% CPI print out of the U.S.. I had highlighted the setup ahead of the move, focusing in on resistance in the 1448-1500 zone that may still have some relevance to the pair, near-term.

EUR/USD Daily Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Sellers Return

After that resistance came into play at 1448-1500, sellers started to slowly make their way back in. Last week began with EUR/USD price action holding trendline support from the prior ascending triangle, but that started to give way just ahead of the FOMC rate decision on Wednesday.

But it was the FOMC rate decision and its immediate aftermath that really brought out the bears, leading to that support breach while the pair pushed down to fresh 18-month lows.

EUR/USD Reversal Hues Begin to Show

Last Friday saw a doji print on both USD and EUR/USD daily charts, and given the extreme trend that had showed in advance, that made sense.

But yesterday’s price action is what makes this more interesting and perhaps even more actionable – as reversals showed in each that have built in a morning star formation in EUR/USD and an evening star pattern in the USD.

Such formations are often followed for reversals, with the morning star reversal traders are often looking for strength to follow with the potential for that formation to have marked the low.

The fundamental drive here appears to emanate from the rather new expectation for US data to begin to disappoint, with even some expectations building for a negative NFP print this Friday.

With an extremely heavy economic calendar this week, that can keep the door open for topside scenarios in EUR/USD, looking for prices to re-test prior resistance levels. As I had shared on Twitter yesterday, the 1272 spot was the first level of interest after prices had jumped back-above the 1187-1212 zone.

This can also keep the door open for short-term bullish continuation, provided that higher-low support shows after this fresh near-term higher-high.

From the two-hour chart below, we can see that resistance playing-in right off of that 1272 level, and the 1187-1212 spot now becomes an area of interest for higher-low support potential.

EUR/USD Two-Hour Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX